Merrill Lynch to freeze costly recruiting bonuses for brokers

Bank of America Corp's Merrill Lynch will stop paying the big upfront bonuses that Wall Street brokerages have long used to lure talent, ending a costly practice that did not always reap returns.

The bonus freeze begins in June and will not affect brokers who have received offers, are in talks with the firm or have expressed interest in joining the firm, a person familiar with the matter told Reuters.

Merrill's decision follows a similar move by UBS Group AG's wealth business in the Americas. It could lead competitors like Morgan Stanley to end the practice as well.

Merrill's freeze was first reported by the investment news website AdvisorHub on Friday.

Recruiting packages have long been one of the most expensive line items for brokerages, but one that is hard to minimize because of aggressive competition for top-producing brokers.

Historically, a top broker could receive a substantial sign-on check, plus an additional bonus paid out over seven to 10 years based on sales and growth targets. In exceptional situations, the whole package could total four times an adviser's trailing 12 months of revenue.

Brokerage executives have griped that it took years to break even on the most expensive recruiting offers and that the offers encouraged brokers to look for the next big check, rather grow their business.

At Merrill Lynch, recruiting costs also included bonuses paid to keep brokers through the 2008 financial crisis and merger with Bank of America.

Those retention bonuses ended in 2015, resulting in a savings for Bank of America of roughly $400 million in non-interest expenses in 2016, according to corporate filings.

Once Merrill's freeze is implemented, most advisers it recruits will not receive either upfront or back-end bonuses, said the source, who spoke on the condition of anonymity because the plan was not intended to be public. The firm is still determining how to structure its baseline offer.

Merrill also plans to launch a pilot program in Chicago to recruit early career advisers who have three to eight years of experience, the source said. They will be offered a three-year salary match guarantee, plus payouts based on production and a possible performance bonus.


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