Merrill Lynch is hiking payouts for retiring advisers and subsidizing client handovers - it's a bid to hang on to assets as the wealth industry is quickly aging
Brian Ach/AP Images for Bank of America Merrill Lynch
- Bank of America's Merrill Lynch Wealth Management is changing up its client transition program for retiring advisers, according to an internal memo from president Andy Sieg and reviewed by Business Insider.
- The changes, which go into effect in November 2021, highlight the aging nature of the wealth management industry and firm's efforts to hold onto assets during this shift.
- A wave of financial advisers are expected to retire in the coming years, while firms are ill-equipped to prep incoming advisers, according to the research firm Cerulli Associates.
- A multi-trillion-dollar wealth transition between generations is expected in the coming years, Cerulli estimates.
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Merrill Lynch is sweetening the pot for financial advisers primed to retire in the coming years and boosting incentives for remaining colleagues to pick up their clients.
The wealth management industry is staring down a looming retirement cliff, and the changes show how Merrill is positioning itself to keep assets within the firm.
The firm is bumping up its payout rate for its senior consultants - meaning veteran advisers - regardless of production levels, by up to 75 percentage points. But the updated payouts to retiring advisers, which they get for five to seven years based on how much business they've brought in, don't go into effect until November 2021, meaning they have to hang around at least that long to take advantage.
Merrill will also subsidize 20% of the cost to the inheriting adviser, meaning the remaining adviser has the chance to be fully credited for revenues from their new book more quickly, particularly if they grow the business more themselves. Inheriting advisers otherwise could only count 50% of their revenue each year as their own for up to eight years, with the other half counting towards paying the firm back in full for the new book of clients.
These client transition program changes were detailed in a memo sent on Wednesday to Bank of America's Merrill Lynch Wealth Management financial advisers that was reviewed by Business Insider.
The coming changes "are based directly on your feedback," Andy Sieg, the unit's president, told financial advisers in the memo.
Payouts are calculated as an adviser's trailing 12-month production, multiplied by their award percentage.
Merrill is also putting in place a floor on the client transition program award percentage for advisers that are considered "top-tier" or "longer-tenured," and is allowing advisers producing $5 million or more in revenue to partially transition their business to their team before fully entering the program.
Sieg said in the memo that the program is key to providing "uninterrupted" service to clients.
"We know how critical it is for clients to continue to be well-served across generations and how important CTP is to all of you as you think about your career and the future of your team," the memo said.
The unit's pool of advisers have long been called the "thundering herd" for its size as one of the largest US wealth managers. At the end of the third quarter, it counted 17,657 advisers, which include financial solutions advisers who work on the digital Merrill Edge product. It no longer breaks out full-service advisers as its own category.
The shifts within the program, which started in 2006 as a way to move the clients of advisers nearing retirement to team-members or other Merrill Lynch advisers, highlight the aging nature of the wealth management business.
Some 37% of advisers are expected to retire over the next decade, the industry research firm Cerulli Associates said in a report published this week, with the wirehouses - large full-service broker-dealers - among the groups with the largest portion of advisers primed for retirement. At the end of 2017, the average adviser was 52 years old.
"While some progress is being made, the industry is struggling to recruit and retain advisor talent that is adequately prepared to inherit the businesses," Michael Rose, Cerulli's associate director of wealth management, said in a statement released on Tuesday.
There's another reason wirehouses like Merrill Lynch are bolstering their client transition plans - $68 trillion in wealth is expected to transition from one generation to the next over the next 25 years, Cerulli estimates. Of advisers planning to retire in the coming decade, just 28% expect an adviser within their practice to succeed them, while 22% have no plan in place.
Merrill Lynch reported client assets of $2.9 trillion during the third quarter, up 2% from one year ago.
Wells Fargo Advisors, a rival wirehouse, has a similar Summit program that ensures a client's transition from one retiring adviser to others at the firm. The San Francisco-based firm has said that retirements drove adviser headcount lower in its wealth management unit during the third quarter.
"We anticipate continued retirements, as we've seen enthusiastic response to Summit, our enhanced succession program," a Wells Fargo Advisors spokesperson told us earlier this month.
Wells has lost some 1,400 advisers since a sales practices scandal first came to light in its retail arm in 2016. But for the third quarter, it said that it hired more people than those who that left for competitors.
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