To Merrill Lynch Advisors,

We are not attorneys and this article is not meant nor should be taken as legal advice. Our comments about the CTP may or may not be legally accurate. Our characterization of the CTP may not be accurate or beyond dispute. Advisorbox asks advisors to carefully read the CTP for themselves and to hire a lawyer to review and explain the ramifications of the agreement.

Merrill Lynch advisors across the country are being asked (and some tell us even pressured) to sign the CTP. Merrill Lynch’s CTP (Client Transition Program) is Merrill’s revised sunset plan for retiring advisors.

CTP Overview

The retiring advisor transitions from a Financial Advisor/Private Wealth Advisor to a Senior Consultant role, but continues to be employed full-time and remains licensed. The retiring advisor hands off their clients to the receiving advisor. The retiring advisor receives a salary and has a commission split with the receiving advisor(s). The retiring advisor can select a 2, 3, or 4-year payout period. After this period is over, the retiring advisor resigns from Merrill Lynch, gives up their licenses and registration, and leaves the securities business for a minimum of two years.

Merrill Lynch management is promoting the CTP as a great deal for retiring and receiving advisors alike. But is the CTP a good deal for advisors? We don’t think so.

Our Negative Bias on the CTP

We freely share our negative views regarding the CTP have multiple biases. We financially benefit when a Merrill Lynch advisor chooses not to sign the CTP and utilizes Advisorbox to help him or her to choose an alternate succession strategy. But we are also biased against firms who restrict the freedom of choice for advisor’s careers and a bias against firms who seek to drive a wedge between the relationship of the advisor and their clients. These biases naturally put us at odds with wirehouses in general.

However, the CTP is so restrictive, one-sided, and unattractive, that a third party like us isn’t necessary to paint the CTP with a negative brush. Just read it yourself.

Financial Consequences are Significant

In addition to the legal consequences advisors subject themselves to with any of the wirehouse succession programs, the financial consequences are just as striking. When advisors exit through wirehouse succession programs they are:

• Getting half the value (if that) their practice is worth in the open market
• Getting paid typically over 3-5 years instead of getting 80% to 100% upfront
• Getting taxed at regular income rate instead of capital gains

When Financial Advisors financially advise themselves in the same way they would a client, this isn’t a sound retirement planning strategy from a financial perspective.

This Agreement has Legal Teeth and can Chew You Up

When an advisor reads the CTP initially they first impression they may have is how impressed they are that Merrill Lynch lawyers were able to cram so many restrictions and provisions in so few of pages. The CTP is jammed packed with so many one-sided provisions that calling this heavy-handed is lightly stating the reality. The lawyers who crafted the CTP mean business and any advisor considering signing it should consider taking a cautious approach.

Advisors shouldn’t sign this agreement based on their understanding of the program and the non-compete covenants as explained by management or other advisors. No verbal promises made carry any weight in this agreement. The CTP wasn’t designed for an advisor to just read and sign. It was designed with enough potential negative consequences for the retiring advisor that the CTP literally urges the advisor to consult with a lawyer about the terms and scope of the agreement before signing.

Take Merrill Lynch’s Advice and get a Lawyer

Merrill Lynch does warn advisors about the CTP in the CTP. Advisors are agreeing that they completely understand the terms and conditions and urged to consult with a lawyer. The advisor is agreeing that they had the opportunity to ask questions about the agreement. Merrill gives the advisor 21 days to accept the terms and even gives 7 days for the advisor to revoke and nullify the agreement after signing it.

Advisors who do not hire a lawyer to review the CTP will have a hard time convincing a judge at some point in the future that they were duped into this, weren’t warned and didn’t have adequate time for due diligence.

We recommend you take Merrill Lynch’s advice and hire a lawyer. Need referrals of lawyers familiar with the CTP? Call us and we will introduce you.

Restriction Period is Indeed Restrictive

After the completion of the program (or early termination), there is a two-year Restriction Period.

• Restrictions include a two-year removal from the securities business or participating in any securities business.
• The retiring advisor must not directly or indirectly contact former clients to solicit them to transfer their accounts somewhere else, conduct any securities transactions, or offer financial advice.

The advisor also can’t discuss past, present or future securities transactions or related matters with former clients or the receiving FA.

Covenant Not to Compete Last 2 Years

• For the retiring advisor, the Covenant Not to Compete, continues for 2 years after the end of the program and the advisor is no longer employed by Merrill in any capacity.
• If an advisor works or resides in the state of California then they are exempt from the Non-Compete Covenant. However, these advisors are required to waive any and all rights under California Civil Code 1542 and are under all other rules, provisions, and obligations of the CTP.

You take the Risk, They take the Advantage

When an advisor signs the CTP they are agreeing that:

• Merrill has the exclusive right to interpret the terms and conditions of the CTP and agreement.
• That it is Merrill Lynch that is the sole owner of your client relationships.
• Arbitrations go before FINRA but they can still seek injunctive relief or other equitable relief in any court of competent jurisdiction.
• Advisor gives advance consent to a Temporary Restraining Order and a Preliminary or Permanent Injunction ordering.
• The advisor is liable for company’s attorney fees and costs incurred in connection with the CTP enforcement.

Payments can be Stopped and Required to be Paid Back

For retiring advisors, the CTP does not provide the same security as an advisor would receive if they were selling instead of sunsetting. There are more than a handful of ways the retiring advisor could not only cease receiving payments but can even be required to pay back payments already received.

• Advisors must work at least a 20 hour work week and meet the definition of a full-time employee or jeopardize receiving additional payments.
• If the advisor interferes with the distribution of the clients then Merrill may conclude the advisor is no longer eligible for the program, cease making payments, and require the advisor to return all non-salary payments made to the advisor.
• If any of the provisions of the agreement or the program are breached by the advisor then the company will not only immediately terminate payments but advisor will be required to pay back all non-salary compensation received from this program as well.

Retiring Advisors Have to Give Up More Than Just Their Clients

The legal irony of the CTP is striking. First, Merrill demands loyalty but does not return it in our opinion. During the CTP period, the retiring advisor “owes a duty of undivided loyalty” to the company.

Second, the advisor must continue to comply with all Merrill policies, procedures, and ethical standards. While the CTP demands loyalty and ethical standards of the advisor, the CTP demands that Merrill Lynch is released of any such nonsense themselves.

Advisors must remain ethical but wirehouse and associates get free reign

• The CTP requires the advisor to adhere to rules and ethical standards. Then it requires the advisor to release and discharge Merrill Lynch, their subsidiaries, and affiliates officers, directors, employees, agents, benefit plans, trusts, and committee members from doing the same.
• The advisor must release and discharge virtually anyone affiliated with Merrill it seems, of any and all actions, causes of actions, claims or charges that are known or unknown, compensation or bonus claims, and back pay.
• Merrill is released from compensatory, punitive or exemplary damages, attorney fees, wrongful or unlawful discharge, any contractual or common law claims.

The CTP requires advisors to give up their civil right protection acts

The advisor also grants a release to Merrill of any violations of various consumer protection acts and any amendments to these acts. That’s right, when you sign the CTP they are no longer restrained by the:

• Civil Rights Act
• Equal Pay Act
• Age Discrimination in Employment Act
• Americans with Disabilities Act
• Employee Retirement Security Act
• Family and Medical Leave Act

Advisors release wirehouse from any federal or state employment law

• The CTP releases Merrill from violations of federal, state or municipal employment statutes or laws.
• They are also released from violating any other law, rule, regulation, or ordinance pertaining to employment, wages, compensation, or hours worked.
• Released from any other aspect of the retiring advisor’s employment relationship.

Give up the right of personal relief from civil actions and suits

• If a civil action, suit, arbitration, or legal proceeding in connection with company employment is filed then the retiring advisor gives up the right to seek or accept any personal relief in connection with the civil action, suit, arbitration or legal proceeding.
• Advisor expressly acknowledges that this agreement is intended to include in its effect and without limitation, claims and causes of action which employee does not know of or suspect to exist in employee’s favor.

Receiving Advisors Pay More than Sticker Price 

• Receiving advisor agrees to a 5-year non-solicit on the household accounts taken over.
• If the advisor’s employment with the company is terminated the CTP still wants the 5 years.
• The 5 years is demanded by the CTP even if the advisor joins a protocol firm.
• Receiving FA can pay back all payment obligations to “buy their way” back into protocol so as long as they aren’t violating any team or pool agreement with another advisor(s).
• If advisor’s employment ends, the company will distribute clients to other advisors, however, the receiving advisor is still obligated to fulfill the rest of the agreement.
• Receiving advisor also consents in advance to a TRO and injunction order.
• The advisor is also responsible for all company attorney fees racked up in enforcing the agreement.
• The CTP payment obligations are absolute and unconditional.
• The advisor waives all defenses to the CTP payment obligation.

Alternatives to the CTP

Yes, the CTP is the path of least resistance for retiring advisors. Most advisors will choose this path and we understand their reasons. If the financial or legal consequences of the CTP doesn’t really matter to an advisor, then neither does this article. For those advisors who are in a situation where they can explore more attractive succession alternatives, there are more lucrative and flexible paths available.

For alternatives to wirehouse succession programs check out our article:

Advisor Alternatives to Wirehouse Succession Programs

Have a Confidential Consultation with Advisorbox

If you are a wirehouse advisor considering retiring or acquiring we invite you to give us a call to discuss other options that are available. We work for the advisor not any firm or option you would consider. We can help inform and compare traditional and independent options and discuss strategies that would best match your individual situation, timeline, and goals. We turnkey the entirety of the process and maximize the deals offered to the advisors we work with.

We are not attorneys and this article is not meant or should be taken as legal advice. Our comments about the CTP may or may not be legally accurate. Our characterization of the CTP may not be accurate or beyond dispute. Advisorbox asks advisors to carefully read the CTP for themselves and to hire a lawyer to review and explain the ramifications of the agreement.