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Merrill’s Retire-in-Place Contracts Leave Senior Advisors in Golden Handcuffs

Advisors who accepted Merrill Lynch’s succession agreement are now realizing how stuck they really are—serving as a cautionary tale for others nearing retirement.

As a recruiter, I’m invested in assuring advisors that they are never stuck because in a greatly expanded industry landscape with transition deals at high watermarks, it is more likely than ever before for someone to find a potentially better home for his business.  

Yet there is one group of advisors that may truly be “stuck”—those who signed onto a retire-in-place program like Merrill’s Client Transition Program (CTP).  

To be sure, almost every major brokerage firm has its own version of a succession or sunset program that allows senior advisors to retire, transfer their business to the next gen and monetize in place. These programs can be compelling for a senior advisor who has every intention of retiring from his firm and being rewarded for his life’s work.

Yet Merrill advisors are finding that the firm’s CTP agreement is far more restrictive, containing clauses that many advisors are unaware of, and attorneys describe it as “the most stringent” of all retire-in-place programs.

Having opted to take itself out of the competitive recruiting game more than a year ago, Merrill instead doubled-down on retaining its current workforce, and the restrictions inherent to CTP are one such example. And based on feedback we’re hearing from Merrill advisors and attorneys familiar with the agreement, the firm appears more convicted than their wirehouse counterparts to bind top producers to the firm for the life of their careers.

The Attorney’s Perspective

“There’s a lot of downside hidden in this [CTP] agreement that the senior advisor may not understand,” shared Tom Lewis, a Board-certified Civil Trial Attorney at Stevens & Lee who specializes in employment litigation and advisor transitions.

As Tom describes it, there are two key restrictions in Merrill’s CTP agreement specifically that make moving a “non-starter” as he puts it:

  1. A strict non-compete clause which prevents the senior advisor from working in the industry for two years post-agreement—further limiting him should he want to leave with his team even at the end of the agreement.
  2. And if a senior advisor were to breach the agreement, there’s a hefty clawback provision—stating he will owe the firm all monies paid under the agreement PLUS forfeit the deferred comp he would be due in the future.

“Advisors I’ve counseled are often shocked to learn about these provisions. And we find Merrill’s [CTP] to be more onerous to the senior advisor than retirement agreements at other firms (like Morgan Stanley or UBS) because of this non-compete component,” Lewis said. “While non-competes are typically not enforceable in the securities industry, it is in this case because it’s part and parcel of a retirement agreement.”

What’s most ironic is that while senior advisors—typically the industry’s best and the lifeblood of a team—are bound to the firm, their next gen have options. Should the inheritors decide to jump ship before the agreement is up, as long as they are willing to write a check back to Merrill for the unforgiven portion of the obligation, they’re free to go, but the senior advisor must be left behind.

This has created an uncomfortable situation for everyone involved: Senior advisors who didn’t anticipate the desire to leave Merrill or continue working beyond the agreement; and next gen inheritors, many of whom are family members, who didn’t foresee having to make a choice between doing what’s best for the business and loyalty to the person who built it.

The Advisor’s Perspective

We’re hearing from a good number of senior advisors who signed on to CTP and have since regretted doing so. For these folks, the realization that things have changed at the firm—in ways they never expected—is making the next several years feel more like a sentence than an opportunity.

As one such advisor put it, “It’s not what I signed up for. I’m terribly frustrated by the incredible bureaucracy, the sad change in what was a wonderful culture, and my ever-increasing loss of control. But I’m stuck,” she said.

With a $10-million business, one would think she would have lots of options. But unfortunately, “I have been turned down by everyone because when their legal counsel reads my CTP agreement, they don’t want to touch me with a 10-foot pole.”

The message here—whether you are the soon-to-retire advisor or next gen inheritor—is to be thoughtful and deliberate before you sign a succession agreement that will bind you and your business to the firm. Be 100% certain that you can live with any and all changes that may come down the pike during the life of the agreement. Be clear on your own goals and your options, because to sign away optionality means losing control of your destiny. And your destiny should be only yours to control.

Mindy Diamond is CEO of Diamond Consultants in Morristown, N.J., a nationally recognized boutique search and consulting firm in the financial services industry.

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