Merrill Lynch’s Second Act For RIA Reinvention Is Revealed

Merrill Lynch’s Second Act For RIA Reinvention Is Revealed

In recent months, with the DoL fiduciary rule looming, Merrill Lynch has announced that it is ending commission-based retirement accounts, ceasing its (expensive) efforts to poach brokers from competing wirehouses (which historically included large bonuses for production and growth that could violate DoL fiduciary rules), and more recently also stated that it is ending lucrative bonuses that have typically been used to incentivize and retain top-selling brokers, effective June 1st (given that such bonuses can also result in untenable conflicts of interest under the DoL fiduciary rule). And with the dollars that are being freed up from this payouts, the wirehouse is instead shifting resources into building out a training program for new/young advisors (with a whopping 3,800 individuals currently enrolled), and a new recruiting program aimed towards advisors with 3-8 years of experience that will pay them a steady base salary for up to 3 years. In the near term, these shifts are expected to cause substantial attrition, as high-production brokers will inevitably be recruited away to competing wirehouses and regional broker-dealers (and some may even go out on their own and become RIAs through transition platforms like Dynasty and HighTower). But in the long term, the shift raises the question of the kind of success and profitability that Merrill Lynch might drive by focusing more on salary-based advisors who are primarily incentivized to service and retain existing clients, rather than selling new products to new (and existing) clients, effectively turning Merrill Lynch from a traditional wirehouse sales culture into one that looks more like a bank (not surprising given its parent company Bank of America), or even a giant national RIA. Yet given what is still tremendous economies of scale at Merrill Lynch, questions abound as to what Merrill might be able to accomplish with a more RIA-like structure… including whether in the future it might begin to engineer “reverse-breakaways” that compete with RIA custodians and tuck independent RIAs back into the broader Merrill Lynch/Bank of America platform?

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