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Merrill Lynch leaves pay grid unchanged, tightens small account policy

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Merrill Lynch will leave its compensation plan’s incentive grid unchanged for 2021 but it is making tweaks elsewhere — including a cut to payouts on small accounts.

“We felt it was important to maintain stability,” said a senior Merrill Lynch executive, who requested anonymity in order to discuss the matter.

The news comes as the firm caps off a tumultuous year marked by unprecedented market volatility, economic upheaval and an ongoing public health crisis that has killed approximately 275,000 Americans and left millions more ill. Merrill Lynch reported record client balances of $2.6 trillion for the third quarter and predicted that nearly 80% of its advisors will achieve higher production for 2020 than they did in 2019.

Unveiling its 2021 compensation plan to advisors Thursday, Merrill Lynch became the first wirehouse to detail pay changes for the upcoming year. Aspects of the 2021 compensation plan will likely please some advisors, namely the unchanged incentive grid and growth grid.

The team grid will be simplified, moving to an overall book-level performance from a focus on individual clients.

Higher ground

The company’s small household policy is changing, however. Advisors will get a 0% payout for production credits generated in households under $250,000. The change marks a further shift in emphasis at the biggest brokerage firms, which have pushed advisors to cater to larger clients and move smaller accounts to robo advisors or self-directed platforms.

In 2012, Merrill Lynch introduced a reduced payout of 20% for households in the $100,000 to $250,000 client segment. The firm’s advisors increasingly focus on high-net-worth and affluent clients. New households have been on average $1.3 million in size, and that is up year-over-year, according to the senior Merrill Lynch executive.

“That [shift] really reflects where our business is today and where it is going,” the Merrill executive said.

Of course, advisors can continue working with such small accounts. Investors can also opt to have their accounts served by Bank of America’s other offerings, such as Merrill Edge.

Cash component

And, in a sign of how record low interest rates are affecting wealth management, Merrill Lynch announced it would change advisor compensation on cash accounts.

Production credit payouts on certain cash solutions are dropping to 2 basis points from 4 basis points. The move affects cash deposits in bank and brokerage accounts, money market funds, bank CDs and brokered CDs.

The Federal Reserve has signaled that it won’t raise the federal funds rate any time soon. Third-quarter earnings from banks and wealth management firms underlined the industry’s sensitivity to the Fed’s call.

“Low interest rates are going to hurt all kinds of financial companies,” Patrick Leary, chief market strategist at Incapital, an underwriter and distribution company, told Financial Planning earlier this month.

Last year, Merrill Lynch sweetened incentives for advisors who stay at the wirehouse until their retirement, increasing payouts in a bid to keep the advisors’ assets in-house.


Andrew Welsch Managing Editor, Financial Planning