Bank of America reportedly has booted Merrill Lynch from the “adult recruiting table” where recruiters compete for the “best and biggest” advisors in the industry. The Step-Mother Bank has reseated Mother Merrill at the “kids table” to seek out and recruit only junior level advisors and trainees.
AdvisorHUB broke the story that beginning June 1st of this year, Merrill will stop providing signing bonuses to experienced advisors and instead focus on increasing their training program and a new PTA (Professional Transitional Advisors) program to pay salaries to junior advisors between 3 and 8 years experience. As of the date and time of this Blue Paper, Merrill hasn’t made a formal announcement, and possibly may delay an announcement because of AdvisorHUB’s article and all the articles from our industry media, which quickly followed.
Merrill, once a recruiting magnet to many of the biggest and most sophisticated advisors in the industry, is dissolving the culture of staying the best, by hiring the best, because evidently the best isn’t worth the price anymore. We get it, it’s expensive to hire top producers and superstars. Especially, when you consider how affordable mediocrity is nowadays.
A few thoughts from Advisorbox and our disclaimer. For years we have helped Merrill advisors transition to other firms (both independent and corporate) and have long been promoting the advantages to Merrill advisors to sell their practice rather than sunset. Our thoughts are not meant to disparage Merrill advisors in any way because they are amongst the highest quality advisors we work with. They are also amongst the most coveted advisors to the firms we do work with. Our intent is to share the reasons why Merrill advisors (and other bank owned broker dealer advisors) should at least consider their options.
- Even though Merrill is reportedly no longer competing for top advisors, other firms are, (though many deals have pulled back in size due to DOL) and Merrill loses billions every year in assets to recruiting. According to InvestmentNews “Advisors On The Move” there have been 19 Merrill advisors with $4.6B in AUM that has left in just the last 2.5 months. That’s an average AUM per advisor of $242MM each! Merrill has historically replaced top advisors they loose from recruiting (and natural attrition) by both recruiting top advisors from their competition and through training and team programs. A balanced approach brings in the best talent from both. By removing one side of the scale you remove yourself as a realistic destination for top advisors join. We expect this in-balance will cause many unanticipated negative consequences to Merrill’s recruiting, culture, and human capital.
- Reading the tea leaves with Merrill Edge, Robo Advisory, and the new recruiting direction to name a few, it seems Bank of America is making its biggest push yet into the mass affluent market. BofA’s hiring strategy allows them to put these advisors in any channel as changeable widgets. As BofA takes Merrill into the salary model they’ll increase profitability with fee based business, minimize the importance of the advisor client relationship, and create a more interchangeable advisor model. If this is BofA’s strategy, then it makes sense not to target the industry’s top producers working with high net worth clients when it is more affordable to have newer salary advisors targeting the mass affluent.
- Bank of America’s steady dismantling of Mother Merrill’s culture is nearly complete. The Step-Mother Bank wants to replace her Thundering Herd with those who look more like her. The corporate cultural takeover will be fully complete when the bulls attrition out and are replaced with only calves. Imposing a bank broker dealer culture is easier with advisors that are more easily manipulated and controlled. Replacing the herd with trainees and junior advisors with 3 to 8 years experience, with lower asset levels, who needs a warmer lead or team environment to grow should do the trick. All the Step-Mother Bank has to do now is convince their aging top producing bulls to stay in the pasture long enough for these calves to grow horns.
- Replacing the 30% to 40% of advisors reaching retirement age within the decade should be a cause for alarm and priority for any broker dealer. We understand Merrill’s push for hiring and developing the next generation of advisors. However, Merrill shouldn’t assume all their retiring advisors are just going to take a sunset deal from a junior advisor. Why would they? It’s much less riskier and much more profitable to sell their practice to another top practice at a different firm. Plus get 75% of the price upfront and get taxed as capital gains instead of income.
- With selling, it will be easy for Merrill advisors to explain and transition their clients to a similar level advisor as you, a seasoned and currently successful top advisory practice. By sun setting to a junior advisor you’re not only sacrificing serious dollars, you may be handing over the client base you worked a career to build, to an advisor that hasn’t experienced and successfully navigated a down market, that has never managed a client and asset base that big, and may not have the level of “life experience” your HNW clients have appreciated in you. It’s also riskier since in a sunset deal you hand off the practice and get a payout for a few years based on what the junior advisor does, not based on what you have already accomplished.
- We expect Merrill will also loose many of their top-recruiting managers to competitors. Many of these savvy pros have been at Merrill a long time, have extensive relationships with Merrill advisors, and will be recruiting their friends out of Merrill to their new firms, accelerating Merrill’s talent and experience drain all the more.
Competitors still seated at the “adult recruiting table” will feast at Merrill’s absence. The firms committed to being a destination for the biggest advisors and most successful practices in the industry, are smiling at an empty chair, one once long held by a formidable recruiting powerhouse.
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