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Hitting record growth, Merrill to keep pay incentives in 2019

Merrill Lynch notched strong growth for the third quarter, fueled by advisor compensation changes made earlier this year and a new focus on smaller markets.

The pay tweaks — which included a bonus or pay cut of up to 2% depending on whether an advisor meets certain growth goals — have improved client acquisition and are likely to remain in next year’s compensation plan, an executive with knowledge of the matter says.

“There may be slight changes, but it will be part of the 2019 comp plan,” says the senior Merrill Lynch executive, who asked not to be named.

The firm’s client balances hit a record $2.38 trillion for the quarter, up 3% year-over-year. Revenue increased 3% to $3.9 billion, Bank of America, which owns Merrill Lynch, reported Monday. Advisor productivity, at $1.04 million, was up 4%.

Merrill Lynch client balances 3Q 2018

The firm said year-to-date client acquisition is the highest it has been in five years, though it does not provide specific figures. Still, Bank of America executives touted the numbers and the compensation plan changes’ role in accelerating it.

“Advisors have responded positively,” Paul Donofrio, chief financial officer at Bank of America, said during an earnings call.

Another factor behind the positive earnings report: Merrill Lynch’s efforts to focus on growth in rural markets.

“Our local market strategy is helping to better integrate and deepen relationships,” Donofrio said during the earnings call.

The company is also appointing new executives to oversee these markets, which it dubs community markets, rather than leave them under the supervision of managers tasked with oversight of large urban units. Earlier this month, the firm named Stanley Stephens for a newly created regional unit in Texas.

Merrill Lynch is also actively recruiting advisor talent in these markets, even as it has reduced its overall hiring efforts aimed at attracting talent away from rivals.

In total, the firm has delineated nearly 160 such markets, and it has rolled out its new technology and recruiting strategy in about 100, according to a Merrill Lynch spokesman.

“There is wealth in these areas that has pretty much been untapped by larger wealth management firms,” Mickey Wasserman, a recruiter who works with Merrill Lynch, says.

For example, UBS sold off a slew of regional branches to Stifel several years ago, Wasserman notes.

Wasserman says it will take a couple years to see what the pipeline and marketing effort will look like.

As far as hiring goes, Merrill Lynch’s head count has remained relatively steady in recent quarters.

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The firm reported having 14,838 brokers, 18 more than the previous quarter and 116 fewer than the year-ago period.

That’s better than figures reported by Wells Fargo, which said Friday that its advisor ranks has dropped 152 brokers from the prior quarter to land at 14,074. That’s 490 fewer advisors from the same period a year ago.

Still, the advisors that are leaving Merrill Lynch are not insignificant.

This quarter the wirehouse lost a team managing almost $1 billion in client assets.. That group, led by advisor Michael Henley, opened up an RIA with Dynasty Financial Partners in Chadds Ford, Pennsylvania.

At least eight teams to leave the firm this year have managed over $800 million in assets at Merrill Lynch, according to company hiring announcements. In total, at least 108 advisors managing nearly $24.75 billion in assets have moved to competitors so far this year.

Some of the departing advisors have cited concerns that management is increasingly beginning to resemble a bank.

But this should come as no surprise — Bank of America has announced it is working to more tightly unify the banking and brokerage channels, and has made efforts to do so in its training programs, compensation plans and technology investments.

The bank has also sought to eliminate more risky investment offerings. Beginning in late September, clients could no longer sell penny stocks without regulatory review. The most risky of the penny stocks were banned entirely.

Overall, Bank of America had its highest performing quarter in terms of pre-tax earnings even though its investment bank had faltered, CEO Brian Moynihan said on the earnings call with investors.

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