Merrill Comp Changes Are “Chinese Water Torture”: Broker
The annual changes that firms make to their compensation plans to promote a flavor-of-the-day service or product, such as loan generation, have long been castigated as a cat-and-mouse game. The trick is to make subtle changes that will not alienate brokers, but that’s easier said than done, according to brokers, managers and compensation consultants.
Take Merrill Lynch and its force of about 14,500 brokers. In 2015 it implemented a penalty that cut 1% off back-end (deferred) grid revenue of brokers who did not make at least one referral to lenders at parent company Bank of America. (We’re still waiting to hear how many FAs were affected, either because they didn’t care about the money or didn’t want to subject their clients to bank products.) But instead of backing off, Merrill Lynch this year went broader, raising the hurdles on its compensation grid by $50,000 for producers below $1.5 million.
“BofA has performed Chinese water torture for six years now on our comp,” a long-time Merrill broker said. “It is nearing a breaking point.”
Resumes are being dusted off, said the New York-based broker, though he doesn’t expect the “mass exodus” that some recruiters were forecasting now that retention packages are winding down from the 2009 bank takeover.
“The recruiters are the ones who pushed the January exodus story,” he said. “There is obviously incentive on their part to create a panic.”
Brokers who are unhappy but want to stay with a big mother-ship really don’t have much choice since conditions are pretty commoditized across the spectrum. At least BofA is a first-mover, the broker said. Merrill is well ahead of Morgan Stanley and UBS in terms of pushing loans and other banking products to clients and in centralizing managed money accounts into a single platform with a strict discounting policy.
“The only saving grace is UBS and MS are stepping on their own d*cks right now,” the Merrill broker said.
Morgan Stanley, for its part, seems to have learned from its 2015 compensation mistake. What it considered a tweak when it pushed a chunk of upfront grid money into the deferred bucket fomented a near-revolution among its brokerage force.
“The number one management priority this year is don’t f*ck with the FAs,” a 15-year Morgan Stanley veteran told us. “In last year’s first quarter, very little was done here. We were all trying to figure out what the plan meant for us.”