Exclusive: Merrill MVPs earn half firm's revenue, big paychecks

NEW YORK Wed May 9, 2012 4:47pm EDT

Passersby walk in front of the Merrill Lynch building in New York, May 7, 2012. REUTERS/Keith Bedford

Passersby walk in front of the Merrill Lynch building in New York, May 7, 2012.

Credit: Reuters/Keith Bedford

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NEW YORK (Reuters) - The multimillion-dollar signing bonuses that big brokerages are doling out to recruit elite brokers may seem excessive, but internal reports from Merrill Lynch show why firms are willing to pay top dollar for a top broker.

Nearly 46 percent of the revenue received by Merrill Lynch's Global Wealth Management unit last year came from just 21 percent of its top-producing brokers, about 2,500 people, according to copies of the reports reviewed by Reuters.

The monthly reports, available internally as a performance scorecard, provide a rare look inside Merrill, revealing just how far ahead the top one-fifth of advisers are from the rest of the pack.

The reports do not detail each adviser's revenue contribution, but they help provide the best estimate of Merrill's top performers. The reports divide brokers into smaller groups and provide average revenue and compensation credit figures, which Reuters used to calculate take-home pay and estimated revenue for each group of brokers.

Last year, the top 2,400 brokers generated an average of $2.5 million each in revenue for Merrill, double the average of advisers in the next 20 percent, who brought in $1.2 million each on average, according to a report that covered the full year.

The revenue figures, which include money the firm receives from products that brokers sell and any additional money earned from managing client assets, underscore why Wall Street brokerages are in an arms race for talent: Elite performers account for an outsized portion of revenue.

"Clearly the top 20 percent of brokers are far and away the best of the best," said Michael Kostoff, managing partner with the wealth management consultancy The Kostoff Group based in Washington. "These are the guys everyone wants."

Some firms, like UBS, have paid bonuses of up to double those paid by rivals for elite brokers. UBS has hired at least 28 top brokers away from Merrill so far this year, according to Reuters data. And most brokerages are offering far more in sign-on bonuses than they have in years past.

Merrill declined to comment for this story.

Revenue at Merrill Lynch Global Wealth Management, the brokerage business, totaled $13.5 billion last year, ahead of its closest rival, Morgan Stanley, which reported revenue of $13.4 billion for its global wealth management group.

The internal Merrill reports also show that not all brokers in the firm's famous "Thundering Herd" are bringing money into the firm. The number of revenue-producing brokers at the end of 2011 was 12,107, compared with the firm's public total broker headcount - excluding the consumer banking division - of 16,165.

Trainees likely make up most of the difference, industry experts said. Internal figures obtained by Reuters show a similar gap at Morgan Stanley Smith Barney - the firm had 13,745 revenue-producing brokers as of March. It reported having 17,193 advisers in its first quarter earnings.

The Merrill reports also show:

* About 4,500 advisers brought in an average of $1 million or more in revenue for the firm. Of those, about 1,450 brokers with 10 or more years of experience brought in more than $2 million.

* The average revenue brought in by all revenue-producing brokers was nearly $1.1 million.

* Top brokers likely got paid an average of nearly $1 million last year, about 22 times more than the lowest performers, according to Reuters calculations.

* Just 12 percent of advisers - those in the top one-fifth of all brokers by revenue generation - with 10 or more years of experience accounted for an estimated 32 percent of the wealth business's annual revenue.

Broker production, a figure that counts revenue that earns a broker a commission or fee, is listed on a separate report that advisers often use to keep score of where they are against the pack. Generally in the industry, every $1 million in production translates into about $100 million in client assets under management.

Merrill has about $1.8 trillion in managed assets, brokerage assets, deposits and loans.

Poaching an elite broker is one of the only quick ways to bring more revenue to a firm. It can take a decade for a new adviser to build $100 million in client money.

So firms are paying more and more to attract top producers. The best candidates can get up to $5 million in bonuses by taking an offer from another firm and staying for the full length of their contract of about nine years, said Courtney Raymond, a recruiter for Merrill and founder of Houston-based Courtney Raymond Consultants.

The size of bonuses have become "astronomical," she said. "We didn't think it could get so high."

THE ELITE

Andy Tasnady, founder of Port Washington, New York-based consulting firm Tasnady & Associates LLC that serves wealth management firms, said outperformance is often skewed to a small cluster at the top in sales-oriented businesses such as brokerages, pharmaceutical companies and insurers.

Merrill's high performers may be outliers because they have built up exposure to the wealthy and often work on teams, which allows them to pool resources to bring in more money and offer sought-after specialty expertise to ever-wealthier clients, experts said.

"The best have it all: specialized skills, a good process, and an excellent network," Kostoff said.

While top candidates get eye-popping bonuses, other big producers are paid handsomely for their skills. The top 20 percent of brokers at Merrill earned an average of $670,000 last year, before deferred compensation, which can be $78,000 or much more for advisers at this level, according to calculations by Reuters using the data in Merrill's internal reports and the company's 2012 compensation plan.

The most elite brokers, numbering about 680, brought in an average of $3.3 million in revenue to Merrill and earned $893,000 last year on average, plus average deferred compensation of $103,000 or more, according to Reuters calculations.

Meanwhile a broker in the bottom 20 percent brought in an average of $233,000 in revenue and made about $45,000 last year.

Some of the elite brokers have been leaving Merrill. All told, at least 78 advisers who managed nearly $15 billion in client assets at Merrill have left since January 1, based on moves of advisers and teams managing a minimum of about $100 million in client assets tracked by Reuters.

Morgan Stanley Smith Barney lost at least 87 advisers who managed about $7.2 billion in client assets; UBS lost 30 advisers who managed $2.9 billion; and 48 advisers who left Wells Fargo managed at least $1.9 billion, according to Reuters data.

"The money is really at a supreme level right now," said Tom Lewis, a New Jersey-based lawyer with Stark & Stark, who helps brokers with legal matters when they change firms.

"A top adviser would be foolish not to entertain the proposals that are out there," Lewis said.

(This version of the story corrects Morgan Stanley global wealth management group revenue to $13.4 billion for 2011 in paragraph 10)

(Additional reporting by Ashley Lau; Editing by Jennifer Merritt and Will Dunham)

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