Merrill Lynch offers retiring advisors a pay raise

Merrill Lynch is sweetening incentives for advisors who stay at the wirehouse until their retirement.

“We want all of our advisors to start here, build their client base here, and retire from here,” Andy Sieg, head of Merrill Lynch, wrote in a memo to employees.

The new policy includes a top payout of 275% of an advisor’s production. It takes effect in 2021 and follows several quarters of robust advisor growth and client acquisition at the company. Merrill added growth incentives to its advisor payout plan in recent years.

The retirement payout changes are intended to address a looming industry challenge: the thousands of baby boomer FAs who are expected to retire in the coming years.

Just over one third of advisors are expected to retire over the next decade, according to research firm Cerulli Associates. Those brokers manage approximately 39% of industry assets, raising questions about whether clients may move those funds to competitors after their advisor retires.

Some wealth management firms have stepped up efforts to entice newcomers into the profession. For its part, Merrill has roughly 3,500 trainees in its program. But the industry overall still struggles to bring in fresh talent. Cerulli estimates that advisor headcount will shrink by 1.4% between now and 2023.

The problem of replacing retiring advisors is somewhat more acute among wirehouses than hybrid registered investment advisors. Cerulli projects 40% of wirehouse advisors will retire in the next 10 years compared to 31% for hybrid RIAs.

Wirehouse advisors also typically manage more assets than their RIA counterparts. AUM per advisor sits at $147 million in the wirehouse channel, more than double the $67 million for hybrid RIAs, according to Cerulli.

Merrill’s changes to its retirement program are intended to incentivize its advisors to ensure clients stay with the firm after the advisors have hung up their spurs.

Payouts range from 160% for an advisor generating under $1 million in annual revenue to 275% for an advisor generating at least $7.5 million under its revised client transition program. The top payout is 75 percentage points higher than it was previously.

Advisors who inherit retired advisors’ books of business will also see benefits under the revised program. Currently, Merrill Lynch takes a 50% cut over five years of the revenue that the inheriting advisor receives from the retiree’s client roster. This covers the firm’s cost of the payout to the retired advisor. Under the new program, the firm will cease taking its cut once it recovers 80% of the payout made to the retired advisor.

A senior executive said Merrill advisors had “rightly pointed out to us that is not the right incentive structure” since inheriting advisors could theoretically grow the inherited practice and overpay Merrill.

The program also contains no garden leave and non-solicitation provisions for retiring or inheriting advisors.

The firm’s top producers — those generating at least $5 million in production — will now also have the opportunity to partially transition their business to team members before fully entering the program.

In recent years, other firms have also moved to enhance their retirement programs. For example, Wells Fargo boosted its retirement payout to advisors in March. The firm’s bonus is paired with a multi-year non-solicitation agreement.