It says a lot about where the industry is going when the head of Merrill Lynch wants us to think that the king of the wirehouses is just another independent brokerage network.
The last time I checked, Merrill had 15,500 advisors under its banner, which makes it 25% bigger than LPL itself. And it still paid most of those advisors about 40% of their production.
In my world, that kind of scale and that kind of pay scale are still functions of the wirehouse environment, not the independent channel.
But as Sallie Krawcheck points out, the days when Merrill reps were all about pushing proprietary product -- another hallmark of the wirehouse world -- are over, at least on the investment side.
It’s true…because Merrill no longer has any in-house funds to sell. They sold 2/3 of their controlling stake in BlackRock back in November, and what’s left on their shelf is pretty vendor-neutral.
So from the investment management perspective, the point goes to Krawcheck. Merrill reps are now more “independent” than ever. Their clients can build their portfolios out of the best funds available, and that’s great news.
However, it doesn’t explain why star teams say they’re leaving Merrill because there’s too much pressure to cross-sell Bank of America’s banking products to their advisory clients.
There might not be any formal quotas or mandates to push in-house CDs or checking accounts right now, but something got those teams to abandon their retention bonuses and jump ship.
At the end of the day, Merrill is still owned by one of the world’s biggest banks, and that bank is under extreme pressure to squeeze more cash out of all its business lines.
Maybe Bank of America will resist the urge to push banking products through its captive Merrill advisors, no matter how many billions of dollars it loses on its own portfolio of stagnant mortgages or how desperate it gets.
This is not really about Bank of America’s problems or ethics. We could be talking about any of the wirehouses.
What this is really about is the fundamental loss of control that happens whenever one business owns another. As long as there’s a feeling out there that Bank of America might wake up tomorrow and mandate a new cross-selling program, Merrill Lynch is not really independent. The corporate parent owns their accounts and that’s the end of the story.
Some advisors don’t mind. As Sallie Krawcheck points out, a few dozen reps actually joined Merrill last year from the independent channel. If a move like that makes sense for you, your clients, and your career, there’s nothing inherently wrong with it.
But while the shape of the wirehouse may be changing, it’s still going to be the wirehouse, with all the limitations that entails.
(You have to wonder how Merrill tempted those new ex-independent recruits to sign up and accept a 40% lower payout -- do they expect to double their production to compensate? Or are they simply planning on retiring in the next few years?)