Merrill Lynch has introduced a new trainee compensation package to go along with its revamped training program that was expanded to five years (see November 2000 RR, Page 30).
On Jan. 1, the new Paths of Achievement (POA) program replaced Merrill's Professional Development Program (PDP). POA applies to all trainees who received their production number after the first of the year. Existing PDP brokers will stay in that program.
The new program emphasizes gathering fee-generating assets. Here are some highlights:
First and Second Years: Trainees receive a salary, just like they did under the old PDP program (salaries are negotiated between the trainee and branch manager). But on top of that salary, trainees earn “incentive compensation” of 50% payout on annuitized products and 10% on transactions. They must also obtain Merrill's internal financial planning designation, Certified Financial Manager, within their first year.
Trainees are eligible for a deferred compensation award at the end of two years if they've generated $175,000 in cumulative production credits, have $12 million in assets and liabilities, and sell 24 financial plans. The award equals 5% of the broker's revenue generated over the course of those two years.
Third Year: Reps move from salary to a draw against production. Annuitized products still generate a 50% payout, but transaction payout is now based on the grid.
Fourth Year: Annuitized payout drops to 40%.
Fifth Year: All trainees move to the grid for both annuitized and transaction business.
Additionally, all trainees who make it to the 60th month can cash in a $100,000 certificate they received when they got a production number. But there's one catch: Merrill requires trainees to obtain either the CFP, CFA, ChFC or CIMA designation within the first five years to get the bonus.
Brokers who volunteer as mentors to help trainees no longer receive any compensation for that role. According to one Merrill rep, mentors used to receive a small percentage of the trainee's production.
Merrill executives wanted to make it easier for trainees to earn bonuses during their first two years of production, according to the firm. Previously, bonuses were typically limited to the top two performance quintiles, a Merrill spokesperson says.
While the new package clearly encourages asset gathering, it also recognizes that commissions are still important for brokers trying to build a book, says a former Merrill branch manager who is now an executive at another dealer. Veteran Merrill reps do not get paid on transaction business done by small customers, but trainees get 10% during their first two years.
“Merrill has concluded that a strictly annuitized approach to the business misses the point — not everybody can do it, nor did they necessarily get into the business to do just annuitized business,” the executive says.