Tag Archives: Conflicts of Interest

Secrets of the Wirehouse: Compensation Manipulation & Garden Leave

Merrill PicEvery year the big brokerage firms (and the little ones to) announce an updated compensation plan for their brokers. This annual exercise is waited on with baited breath as the firm’s army of brokers will find out how their owners (er, bosses) want them to structure there business. The compensation grid is designed to manipulate the brokers into selling what the firm wants sold and structuring their business in a manner that will benefit the firm. Lately, Merrill Lynch (and others) have begun implementing policies that are designed to handcuff the brokers and make it nearly impossible to work in their clients best interest (as if that was ever a goal).

The first policy change is with how Merrill wants their brokers to structure their business. Mother Merrill wants brokers to “partner” up.  In an article on AdvsiorHub it was recently reported that brokers who don’t partner with another broker (normally an experienced broker with a new broker) will see their compensation cut. AdvisorHub reports in an unsourced quote, the following:

“Merrill Lynch is punishing its sole practitioners in an effort to keep their clients. This is another method of retaining the client at the expense of the advisor. Merrill is set to reduce compensation for non-partnering advisors over the next 18 months. The firm has a big initiative to get these seasoned advisors to take on a trainee because the firm has a great record of keeping trainees. Why not? They drink the Kool-Aid. They all believe Merrill Lynch is the best and are less likely to leave the firm.  This way, if a seasoned advisor leaves to take a paycheck elsewhere (and achieve greater autonomy), then the trainee has immediate shot at retaining any clients.”

So if you are a happy sole practitioner at Merrill and you don’t partner with a younger, newer Merrill broker, you could see your compensation go down. Mind you that partnering with a newly broker might not be good for your business or your clients or the fact that you might not need to partner up as you are doing a fine job on your own, Merrill has commanded it and you must obey.

This policy has one goal, to retain the Merrill broker’s clients if they ever leave the firm. Yet another conflict of being at a wirehouse. It boggles the mind why anyone would work for any of these big brokerage firms.

Think twice before working with a broker.

Scott Dauenhauer, CFP, MPAS, AIF