Merrill Lynch, one of the prominent national brokerage firms, is making notable updates to its compensation plan for financial advisors in 2024. This plan aims to provide higher incentives for advisors who generate significant revenue for the company. The adjustments include modifications to payout percentages and the introduction of new bonuses.
Payout Adjustments Reflecting Revenue Generation
Under the revised plan, Merrill Lynch will continue to utilize a grid-based system to determine payouts for advisors. The percentage of revenue that advisors can receive ranges from 30% to 50%, depending on the amount of revenue they generate. Consequently, the more substantial the revenue, the more substantial the payout.
Brokerage Business Recognition
Merrill Lynch acknowledges the persistence of advisors who engage in brokerage business despite the industry’s inclination towards fee-based models. As a positive change, Merrill is removing a policy implemented this year that had reduced potential pay associated with brokerage transactions. In the upcoming compensation plan, advisors will receive full credit for revenue generated from brokerage transactions, with exceptions for certain heavily discounted trades.
Introducing the New Growth Award
As part of their efforts to incentivize growth and client acquisition, Merrill Lynch is introducing a remarkable new award. This award targets advisors who successfully add a minimum of three new client households with assets totaling $500,000 or more. To qualify for the award, advisors must also achieve net new money flows equivalent to 7.5% of their prior year’s total assets and liabilities. Eligible advisors have the opportunity to earn up to 12 basis points on these flows, which can originate from either new or existing clients.
Replacing and Evolving Rewards
The new growth award is set to replace Merrill’s previous growth grid award, which was implemented around five years ago. The former reward framework included both bonuses and penalties for advisors. With the recent change, the company aims to streamline and enhance the incentive structure. The decision to introduce this evolved reward system aligns with the transition of leadership earlier this year when new co-CEOs took charge.
Merrill Lynch’s updated compensation plan for 2024 demonstrates its commitment to recognizing and rewarding financial advisors who drive revenue growth and expand their client base. These revisions aim to motivate advisors, aligning their efforts with the company’s objectives and emphasizing the value of their contributions.
Compensation Changes at Merrill Lynch
Merrill Lynch, a subsidiary of Bank of America (BAC), has announced several compensation changes for advisors as part of their annual review. These changes aim to align the incentives of advisors with the goals of the company and provide additional benefits for advisors who meet certain criteria.
Payout Reduction for Negative Net New Money Flows
One of the key changes is that advisors who experience two consecutive years of negative net new money flows will face a 1% payout reduction. This measure encourages advisors to focus on attracting and retaining clients, ultimately contributing to the growth of the company.
Banking Award for Advisors
Merrill Lynch is also introducing a new banking award for advisors who have at least 55% of their client households with a qualified Bank of America checking account. Advisors who meet this criteria will receive revenue credit for their clients’ checking account balances. This initiative aims to deepen the connection between Merrill Lynch and Bank of America, while allowing advisors to better serve the financial needs of their clients.
Simplified Compensation Criteria for Advisor Teams
Furthermore, Merrill Lynch is eliminating client engagement criteria for how advisor teams earn compensation. Previously, advisor teams were evaluated based on clients’ adoption of products and services. This change simplifies the compensation process and makes it easier for teams to qualify for higher pay.
The Comparison with Previous Years’ Changes
Although these compensation changes are significant, they are less far-reaching than the modifications made to Merrill Lynch’s 2023 pay plan. Last year, Merrill Lynch increased grid thresholds that determine pay for advisors, marking the first adjustment to these thresholds since 2009. In comparison, the changes made this year focus more on aligning advisor incentives with company goals and improving client relationships.
Other Wealth Management Firms’ Plans
Morgan Stanley announced its 2024 compensation plan earlier than usual. The firm plans to increase grid thresholds, which means advisors may need to generate more revenue to earn the same compensation next year. On the other hand, UBS and Wells Fargo Advisors have yet to unveil their 2024 compensation plans.
These changes reflect the evolving landscape of the wealth management industry, as firms like Merrill Lynch strive to meet the diverse financial needs of their clients, while incentivizing advisors to drive growth and enhance client relationships.