(In 2nd paragraph, corrects to show that the freeze does not
affect brokers who have received offers, are in talks with the
firm or have expressed interest in joining the firm; not that
only brokers who have received offers are exempt)
By Elizabeth Dilts and Olivia Oran
NEW YORK May 12 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
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
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
noninterest 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.
(Reporting by Elizabeth Dilts and Olivia Oran in New York;
Editing by Lauren Tara LaCapra and Leslie Adler)