Merrill Is Not Desperate—The Race For Top Advisors Continues

Merrill Lynch is embarking on an aggressive “push” to hire financial advisors, according to the Financial Times. The story says that since the signing bonuses are greater than those handed out in the bull market of 2006 and 2007, it is a sign of desperation.

Certainly, Merrill Lynch has experienced large amounts of attrition since the Bank of America purchase, and few would dispute the notion that the culture at the venerable institution has certainly changed. But, as a professional recruiter, I’m not sure that I would go so far as to say that it is a sign of desperation. More likely, it is a sign of the times, that the battle for top talent continues.

Signing bonuses to incent quality, top-producing teams is a practical reality within the brokerage industry these days. Advisors who have spent a lifetime building a book of business operate under the notion that they will look to monetize that business at least once in their career. The ability to “sell” one’s business mid career and still own it—eating your cake and having it too—is a phenomenon unique to financial advisors and a few other professionals (i.e. lawyers do something similar).

From mid 2008 through first quarter of 2009, we saw more movement of advisors among the wirehouses than ever primarily because these signing bonuses were at an all-time high. According to Discovery Database, 1,961 reps have been identified as changing BD firms in the month of April, 2009. And, of those 1,961 reps that moved, 86 percent moved within the wirehouse channel. (Recently, that trend has slowed, however.) Of course, it could be argued that the ties that bind were severely weakened by financial firms’ implosion in the credit debacle; loyalty was at an all-time low.

Just after April, 2009, the wirehouse firms decreased their deals to a top, up-front incentive of just 100 percent cash up front. These deals were simply not enough to entice most high-quality advisors or teams, and therefore, movement between wirehouses slowed to a trickle. In July, 2009, Merrill Lynch, tired of being bested in the recruiting game and looking to beef up its ranks, decided to raise its transition package offers to astronomical levels—to the tune of 140 percent cash up front plus replacement of unvested deferred compensation plus 5 back-end bonuses based upon asset growth. At the beginning of August, 2009, Morgan Stanley Smith Barney decided to counter and raised their deals to mid-2008 numbers (with deals for first quintile advisors and teams paying 140 percent cash up front, maxing at 250 percent all in). I do not see these moves as signs of desperation; rather firms are willing to pay forgivable loans as the cost of doing business in order to capture assets and win the race for top talent.