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Merrill Lynch pay plan focuses on putting client money to use

A man walks out from the Merrill Lynch building in New York, May 7, 2012. REUTERS/Keith Bedford
A man walks out from the Merrill Lynch building in New York, May 7, 2012. REUTERS/Keith Bedford

By Ashley Lau

(Reuters) - Bank of America Corp is ramping up its incentives to encourage advisers to convince their clients to take advantage of more of the bank's offerings. The firm is also sweetening incentives for advisers to keep the client money they manage at the firm once they retire.

In its 2013 compensation plan, announced to advisers Monday afternoon, the company outlined plans to remove the cap on awards offered to advisers for bringing in more fee-based assets, as well as other banking, lending and annuitized products.

Merrill also increased the expected payout for advisers who keep their client accounts at the firm after they retire. Often, brokers will become independent advisers or sell their books of business to an independent advisory firm, pulling hundreds of millions of dollars in assets away from the brokerage firm. Veteran advisers generally manage a bigger pool of assets at a company and keeping them provides a needed source of revenue.

The changes come as wealth management businesses are increasingly seen as a key revenue driver for many major Wall Street companies.

"What they're doing is trying to get advisers to diversify their client assets beyond the traditional Merrill Lynch product offering," said Mark Albers, a former Merrill complex manager who now runs his own firm, Albers & Associates Consulting. "It's obviously their attempt to ... leverage the rest of the bank."

Bank of America acquired Merrill Lynch in early 2009 in the midst of the financial crisis. Since then, though, advisers have sometimes bristled at feeling pressured to pitch bank products and answer to clients about their concerns over their parent company.

The Strategic Growth Award, now uncapped, will shift the focus for earning the bonus more towards growth in areas such as fee-based assets and lending, rather than simply increasing net new money, previously a pillar of the award.

"It forces them to put (the assets) to work in order to be compensated," Albers said. "The firm makes money by having assets that are invested in fee products."

So, for example, if an adviser were to bring in a $10 million account all invested in Treasury bills, which are not fee-based assets, those new dollars will no longer count towards the award.

In an effort to keep client assets at the firm, Merrill also increased its cash payout for advisers who leave their client accounts with the firm once they retire.

Advisers can now expect an average cash payout over four years of between 100 percent to 160 percent of their annual production, up from an average of 70 percent to 80 percent.

The payout is offered as a part of a Merrill program geared towards advisers 55 and older once they leave the business. That incentive could help Merrill hold onto valuable client assets of veteran advisers - those who have been with the firm for a couple of decades - who often decide to go independent before retiring in order to "monetize" their books of business and sell it for a higher payout than traditional brokerages might offer.

"Recruiters use that as a recruiting tool," said former Merrill branch manager Brad Stratton.

Merrill did not make changes to its payout grid, which refers to the chart used by brokerage firms to determine the main way advisers' get paid. Morgan Stanley and UBS also did not make changes to their grid.

Merrill also maintained its controversial $250,000 minimum client account size - the minimum value of a client account in order for an adviser to be paid commissions or fees on the account. It was introduced last year in a move to motivate advisers to focus on higher-net-worth clients. The bar was increased from $100,000, which is still the minimum account size that advisers at Morgan Stanley are paid on. UBS kept its minimum account size at $75,000.

(Reporting By Ashley Lau in New York; Editing by Jennifer Merritt, Bernard Orr)

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