U.S. Markets

Merrill Lynch to pay brokers bonuses based on credits for recruiting clients

NEW YORK (Reuters) - Bank of America’s Merrill Lynch Wealth Management said on Thursday that starting next year, it will give advisers more credit toward earning bonuses for recruiting clients worth $25 million than it will for recruiting clients who have less money.

The firm’s 2019 compensation plan introduces a credit system that rewards brokers with four credits for new clients who have $25 million or more in assets, three credits for clients with $10 million- $25 million, two credits for clients with $2.5 million - $10 million and one credit for clients with $250,000 - $2.5 million.

It is an evolution from the carrot and stick approach introduced in the firm’s 2018 compensation plan, which rewarded brokers for recruiting more new clients and penalized them, by docking their base pay, for failing to recruit a minimum number.

Andy Sieg, head of Merrill Lynch Wealth Management, said the 2018 plan worked so well at boosting new client acquisition that Merrill is on the hook to pay its brokers more than it planned.

“We are paying out more than we anticipated, and we are happy about it because we are seeing more progress on client acquisition and net flows,” Sieg said on a call with reporters.

Sieg said they expect to pay more in overall compensation again in 2019.

“Our focus as a management team is to see that increase does not exceed the increase in revenue year over year,” he said.

Like other Wall Street brokerages, Merrill Lynch pays its advisers a base amount that is a percentage of the annual revenue the broker earns.

In 2018, the firm started giving advisers an extra percent for growing net new assets by 5 percent, and an additional percent if they recruited five new clients worth at least $250,000 or two new clients worth $10 million.

If advisers did not grow new assets by at least 2.5 percent this year, they lost 1 percent of base pay and lost an additional percent if they failed to bring in three new clients with $250,000 or one client with $10 million.

The net new asset growth requirements remain the same in 2019.

However, brokers will have to recruit wealthier clients to keep their base pay. Brokers must earn at least four credits, which could be four clients with $250,000 or one client with $25 million.

Thus far in 2018, advisers recruited on average 5 new clients each.

Reporting By Elizabeth Dilts; Editing by Cynthia Osterman