EXCLUSIVE: Merrill Readies New Unit to Serve Clients (and Brokers) in Small Markets
Returning to its Main Street roots, Merrill Lynch is likely to allow brokers in select locations with low market share and no Bank of America branches to work with customers who have less than $100,000 in their accounts, according to well-placed sources.
The plan would modify Merrill’s years-long policy of compensating brokers only on household accounts of $250,000 and higher.
The down-market policy, which is awaiting final approval, would be implemented as part of Merrill Wealth Management head Andy Sieg’s decision to create a “community markets” unit supporting brokers in locations 30 or more miles from their complex managers, the sources said.
The new community “region” would be something of a hybrid approach to meeting BofA CEO Brian Moynihan’s mandate for “responsible growth.” It allows Merrill to find new customers without spending heavily on experienced brokers who demand big signing bonuses, said a person familiar with the project. Merrill in June announced a freeze on recruiting more experienced brokers.
“We are trying to increase our presence in areas of the country that we view as underserved and help our existing advisors in some of these markets increase the size of their practices and also to acquire new clients,” said the person who spoke on condition of anonymity.
“It’s been more challenging in these markets to recruit from some of the local competitors, so we will have a more focused effort there with a different kind of deal.”
New hires within the “community markets” unit, a provisional name that the source said is likely to change, will be paid according to the traditional payout grid that keys the percentage of fees and commissions brokers receive to their revenue production. However, they would also receive a salary for three years to tide them over as they transition, the person said.
The firm expects to activate the new “community” organization in the fourth quarter in three or four markets, with plans to expand to 100 to 150 branches that employ some 1,500 brokers, the sources familiar with the plans said. The branches are small, with about five to 15 brokers, they said.
Many have empty seats that Merrill hopes to fill by recruiting advisors with three to ten years of experience from regional competitors such as Edward Jones, Raymond James and registered investment advisory firms. Those prospects have been reluctant to apply for jobs because of the $250,000 account minimum, they said.
Bank of America has been pushing employees to cross-sell investment and banking products across its consumer banking franchise—Merrill is cutting brokers’ payout grid by 1% if they fail to refer at least two clients in 2017 to their bank brethren—but community brokers would not be expected to promote much more than conventional mortgages and some insurance products.
“The business in these markets tends to be more singularly focused on investment management than other areas of the firm,” one of the people familiar with the project said. “Given that there are no Bank of America branches nearby, we won’t see the same kind of efforts on checking accounts and the like.”
Sieg, who took the reins of Merrill’s wealth management business in January, announced plans for a community markets initiative in March as part of his broad reorganization of Merrill’s 14,800-broker sales force.
His predecessor, John Thiel, cemented Merrill’s policy of declining to pay brokers on sub-$250,000 accounts as the firm diverted its attention away from Ma-and-Pa investors to sell investments, loans and other products to wealthier clients. Large brokerage competitors such as Morgan Stanley and UBS Wealth Management have similar strategies, while firms such as Edward Jones with small-town branches staffed by home-grown brokers have experimented with recruiting more experienced advisors.
“We have a business that is built to cater to clients with wealth,” Morgan Stanley Chief Financial Officer Jon Pruzan said in a conference call on Wednesday when asked about the firm’s plans for providing no-frills “robo” investment management to both traditional customers and to those who are less affluent (and often younger). “The digital-only client is not someone right now that would be interested in the types of products and services that we have.”
Bank of America has been encouraging Merrill brokers to send customers who don’t make the $250,000 grade to the bank’s no-frills Merrill Edge business that operates out of call centers, bank branches and a new online “robo” platform.
Merrill’s community markets unit will have its own management structure overseen by Ben Prince, who formerly ran the firm’s southwest region. He will deploy dedicated internal and external recruiters to staff the quasi-region, the people familiar with the project said.
Merrill is still deciding which branches will be covered under the “community” organization. A source who has been briefed on the project said branches will include locations in Scranton, PA, Huntington, WV, Louisville/Lexington, KY, Mobile, AL, Traverse City, MI and Missoula, MT, among others. A Merrill spokeswoman declined to comment.
—Mason Braswell contributed to this story.