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Will the Rumored Merrill Retention Package Materialize?

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Will the Rumored Merrill Retention Package Materialize?

And will it be the “free lunch” advisors are hoping for?

Advisors are anxiously awaiting a reason to stay, but it may not be the panacea they’ve got their hearts set on.

The level of anticipation amongst the biggest producers at Merrill Lynch, UBS and Wells Fargo rose after October of 2018. At that time, Morgan Stanley announced that it would offer advisors generating at least $10mm in gross revenue for three consecutive years the opportunity to sign-on to a “turbo-version” of the firm’s retire-in-place program earlier than expected.

So naturally, advisors at the other wirehouses have been expecting their firms to announce similar programs designed to retain top talent.

Morgan Stanley’s retention offer was a nice incentive for the advisor who had his sights set on retiring in place—an offer made to just a small percentage of the firm’s 15,000+ advisors. On the surface, it was a sweetheart deal, which allowed this select group to create some immediate liquidity plus get an enhanced payout once they left the firm.

Yet, lucrative as it appeared, it had significant strings attached—including the granddaddy of all post-employment restrictions: 90-day garden leave.

The rewards for loyalty come with a price

While, historically, retention packages have only been offered to advisors as an incentive to stay if their firm was sold, top advisors today believe they’ve been through a war of sorts and deserve a bonus for their loyalty—particularly when so many of their colleagues chose otherwise. This devoted group has endured changes to comp, increasing bureaucracy, diminishing autonomy and control, and ongoing pressure to cross-sell bank products. As such, they whole-heartedly believe they should be incented to remain steadfast.

To be sure, rumors are swirling that Merrill is soon to announce their own version of a retention incentive for their advisor elite. And while advisors who feel they are the ones most likely to get the offer await the big reveal, certain realities simmer in the background—the most prominent being truth to the saying, “There is no free lunch.”

Significant strings attached

While sexy when taken at face value, “stay bonuses” such as these are designed to keep people in their seats, and as such, they are likely to come with strings attached designed to further bind advisors to their firms, including:

  • A garden leave provision, as was attached to Morgan’s deal—Many advisors are not even familiar with what the term “garden leave” means, as it was once a construct reserved only for private banks and first introduced to financial advisors in the Morgan retention program. These draconian handcuffs force advisors to the sidelines for as long as 90 days, without the ability to contact clients—a huge impediment to those considering a transition.
  • Deferring even more compensation—This could mean the firm holds on to an advisor’s earnings for a longer period of time, decreasing the value of his business and making the advisor harder – and more expensive – to recruit.

So, what are the risks in taking one of these packages?

  1. You – and your team – are signing on to the firm for the life of the obligation.
    If you decide that the firm is no longer serving your business best or imposes a decision that you can’t live with, you may be forced to jump ship—from a position of weakness, not strength. Plus, you are binding your next gen to the firm—taking away their optionality and ability to be free agents, which is especially problematic for next gen advisors who may have their sights set on life outside a wirehouse.
  2. More restrictions placed on a business means lower value.
    If you want to leave after having signed an agreement that binds you further to your firm and adds more restrictions, the value of your business becomes diminished—and the business becomes less desirable to buyers.
  3. It’s contrary to the notion of being a true fiduciary.
    A fiduciary has the freedom to make decisions rooted in their clients’ best interests. If you are not certain the firm is the best place to serve your clients, yet are further bound to it, then there exists an incongruence between your actions and your beliefs.

Ultimately, as more advisors get tied up by these programs, the less leverage the overall advisor force has—because the balance of power shifts further away from the advisors and to the firms.

How best to proceed

The path of least resistance is undoubtedly to stay put—especially for the most successful advisors who have a “bat phone” to the top, plus a much higher likelihood of getting their needs met, and a lot of perks that their lower-producing colleagues may not enjoy.

If you are certain that your firm is the very best place for you and your team to grow your business and serve clients for the foreseeable future, then to be paid a “stay bonus” for doing what you were going to do anyway is a homerun. The problem today is that most advisors, even if happy enough, are just not 100% sure that their firms won’t “do something stupid,” as one multi-billion-dollar advisor put it. That is, that the firm won’t cut comp or impose more limitations down the road.

However, if your goal is to maximize enterprise value at day’s end, then signing on to any program that diminishes optionality – even if it allows you to create liquidity in the near term – will unequivocally limit your ability to realize your business’ true potential.

Ultimately, any decision should be made based on your own specific goals. Start by clarifying your vision for the business in the near- and long-term. Because the industry landscape and waterfall of possibilities has expanded in recent years, it’s all the more reason to get educated on the options available and compare it to the deal on the table. And always, remain fully aware that there is no free lunch in business or in life.

Related: Exploring the Independent Broker Dealer Space

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