Sallie Krawcheck to Merrill Lynch financial advisors: “Rest easy.” In an email memo, Krawcheck, the head of Bank of America’s wealth management business, recently told Merrill’s thundering herd that the bank’s new “garden leave” employment policy agreement won’t apply to them. Under that agreement, which was circulated in mid-February, advisers working at BofA’s US Trust unit must commit to stay at U.S. Trust for sixty days after they resign, and avoid soliciting clients for eight months after they resign, in order to qualify for 2010 bonuses and their continued employment.
The Charlotte, N.C.-based bank, which employs 15,500 advisers at Merrill, 2,200 more at U.S. Trust, sent nervous ripples through Merrill when it sent the employment document around.
“Sallie e-mailed a letter saying the bank is not implementing it at Merrill,” one big producer at Merrill Lynch, told Registered Rep., referring to Krawcheck, who oversees a wealth management empire that accounts for $2.2 trillion in client balances. “There was no truth to any rumors that the agreement would be extended to Merrill,” added this adviser. “That’s what we were told in the e-mail.” (A second person at BoA also confirmed the e-mail.)
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BofA’s garden leave agreement has generated a storm of withering criticism from advisers within BoA, and from people outside the company. “The policy is definitely a bit on the harsh side,” said Alois Pirker, a securities industry analyst at Aite Group. “It’s pretty moronic, strategically,” added one former Merrill adviser who said he had heard scathing comments on the policy from advisors at BofA. “How can they hope to recruit talent?” Industry recruiter, Danny Sarch, said it was “unconscionable” what BofA had implemented. “They want to enjoin these guys at U.S. Trust from talking to their clients after they resign,” he added. “I find that repugnant.”
Still, people close to BofA privately accuse rivals of unfairly smearing US Trust, in a competitive industry where poaching talent—and signing bonuses as large as 300 percent or more of trailing 12-month revenue—has upped the ante. “Some folks out there are planting these negative stories with journalists,” said one US Trust source.
A spokeswoman for U.S. Trust confirmed the broad outlines of the new garden leave agreement, so-called because an employee who submits his or her resignation could spend that period theoretically doing anything other than trust services, including gardening, while on the company payroll. U.S. Trust, however, is hardly worried about sunshine and roses. It’s worried about retaining its clients’ assets after advisers quit U.S. Trust. It rolled out the agreement in the wake of the reported departure recently of one FA with $5.9 billion in client assets.
Employees of U.S. Trust, including private client advisers, portfolio managers and trust officers, were told in no uncertain language—ahead of 2010 bonuses—that their continued employment was contingent on them “acknowledging they have seen” the agreement, several people familiar with the matter said. (The U.S. Trust spokeswoman did not provide a headcount of employees affected but confirmed it was confined to U.S. Trust workers.)
U.S. Trust lengthened from two weeks to 60 days the period the affected employees must remain with U.S. Trust if they plan to resign—and they are barred from soliciting clients for eight months after handing in notice, according to people familiar with the agreement. Employees must also acknowledge that they are not part of the voluntary industry recruiting agreement—the so-called broker protocol, these people said. The protocol is a legal agreement between a number of firms in the industry that allows exiting advisers to solicit clients and take certain limited client information with them to another firm without get sued
“The garden leave policy for U.S. Trust is an extension of existing policies that have been in place for some time,” U.S. Trust said in a statement released to Registered Rep. in direct response to our questions. “These policies havepreviously applied to some, but not all, U.S. Trust associates.” “The policy was updated because the U.S. Trust leadership team believed it was necessary to further protect one of our most important assets: Our clients’ trust and their confidence that we are doing everything possible and necessary to protect their proprietary information and interests,” the statement noted.
U.S. Trust added that the decision was not made “arbitrarily,” saying that other firms also have garden leave policies that some of its own recruits had experienced first-hand. (Recruiter Sarch notes, for instance, that legacy Smith Barney branch managers who have chosen to quit the Morgan Stanley Smith Barney’s joint venture have had to live up to a similar contract.) U.S. Trust said the new policy was welcomed by some of its own professionals.
“As a leading private bank, the protection of client privacy, the confidentiality of proprietary information and the safeguarding of client interests is be among our highest priorities,” said the statement. Pirker at Aite Group said though the policy was blunt, it did send a positive signal that Bank of America was paying close attention to its wealth management business across multiple channels.