Corporate & Securities Law

Details Of Merrill Lynch Retention Package May Mean Attrition For Some Reps

By James Eccleston

Investment News has reported that top Merrill Lynch reps have been shown the money, but that attrition package may drive out low producers.  According to Investment News, in the middle of gut-wrenching times for the stock market, top-producers at Merrill Lynch & Co. Inc. will get retention bonuses in line with recent industry deals to stay with Bank of America Corp.

In a conference call with brokers Friday afternoon, Robert McCann told Merrill's 16,850 reps and advisers about the company's compensation plan, which has been the subject of wide speculation for weeks.  Mr. McCann, vice chairman and president for global wealth management at Merrill Lynch, noted that a retention deal was necessary to hang onto reps and advisers.  "In the context of extraordinary change in financial services and a volatile market and economic environment, it is important for clients, shareholders and the future of the combined company to retain top-performing advisers at the two current firms."

Those reps who annually generate $1.75 million in fees and commissions will receive 75% of their bonus in a seven-year forgivable loan, and another 25% in deferred cash over three years.  The next tier of reps, those who produce $1 million to $1.749 million in fees and commissions, will get a forgivable loan equal to 75% of their prior years's book of business, or "trailing twelve."  Those reps also are in line to receive a potential reward for increasing business of 25% of the trailing twelve.  A broker needs to grow his business by 25% to get that piece of the package.

However, lower-producing Merrill brokers have not fared as well.  "For Merrill advisers doing under $1 million in production, this isn't a retention package, it's an attrition package," said a recruiting firm spokesman.  Brokers producing $750,000 to $999,999 will get a 50% loan and are in line for a 25% growth reward, while brokers producing only $500,000 to $749,000 will receive a 25% loan and can receive a growth award of 25%.  And, brokers producing less than $500,000 will receive incentives ranging from nothing for the lowest producers to a deferred cash bonus of no more than 20% over three years. 

One other very interesting aspect of the deal is what Investment Adviser calls a "particularly tough non-compete clause."  This is part of the retention package as Merrill Lynch would propose it.  Apart from the fact that this may fly in the face of the protocol that Merrill Lynch agreed to, brokers ought to consider counsel before signing on to such an onerous provision.

SNSFE attorneys consult and advise brokers from all firms in their transitions and we would be happy to talk to reps considering this retention, or attrition package, as the case may be.

Source:  Investment News

Full post as published by FinancialCounsel on October 31, 2008 (boomark / email).