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Merrill’s new comp plan promises new incentives — and cuts

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Sure, Merrill Lynch’s 2018 carrot and stick comp plan is pushing advisors to new growth levels, but it's also costing the firm more than it planned.

“This program has turned out to be a compensation increase for financial advisors, not the neutral program that we anticipated it would be a year ago,” says Andy Sieg, head of Merrill Lynch. The wirehouse had initially expected pay reductions from the 2018 growth grid plan to be close to equal to the increases, Sieg says.

In its 2019 compensation plan, Merrill Lynch is taking measures to keep growth from outpacing advisor revenue.

The wirehouse will take 3% — or up to $4,000 per month — of advisors' production in 2019, the firm says.

Yet most brokers will still pocket more than ever before, according to Sieg. Based on bonuses laid out in the upcoming growth grid, hypothetically, more than 90% of advisors who met the growth requirements last year would have brought home more money under the upcoming plan, the firm says.

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“We paid out a record amount of financial advisor compensation, and our plan in 2019 is to pay out even more,” he says. “Compensation at Merrill Lynch rose this year, and it’s going to rise next year.”

But the plan may mean more bad news for advisors failing to meet the growth requirements. Approximately one-third of the firm's employee advisors — or 4,644 brokers — failed to meet the quota under the 2018 plan. These brokers experienced a revenue cut of up to 2%. That will remain unchanged in 2019.

The firm is also making changes to growth grid bonuses in 2019. Under the current plan, advisors are required to grow their practices by five new households to receive a bonus. Next year, a point system based on new client assets will be used to measure growth, according to Sieg. Advisors must achieve six new points to qualify for the 1% bonus. Those who fail to reach a four-point minimum growth requirement could face the penalty.

For example, an advisor would earn four points for landing a client with $25 million or more in assets. An advisor would earn one point for picking up a client with assets between $250,000 to $2.5 million.

Additionally, the wirehouse says it will grant "service awards" once every five years to brokers with production over $750,000.

The wirehouse says the plan is intended to both increase compensation for advisors across the board and incentivize growth.

“Our focus is to see financial advisor compensation rising, full stop,” Sieg says. “But what we want to ensure is that the rate of increase in financial advisor compensation is not exceeding the rate of increase of revenue.”

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