How do you pay your employees? Via commission, a percentage of the AUM they acquire, or, via a salary?
Bank of America’s Merrill Edge Wealth recently moved 300 of its advisers into its Merrill Lynch Wealth Management branch offices. The big news here? Merrill Edge advisers are salaried.
This move is not just another case of price compression for the client, but a way to completely change the client-adviser-institution altogether. In the end all firms want to their advisers to make money. The question is, how?
The way financial institutions incentivize their employees seeps down into the value of their advisory services. If brokerages and firms compensate their financial advisers based on selling products, then selling products will be their advisers' priority. Merill Edge's model theoretically forces the brokerage firm to assess their advisers beyond AUM and sales. However, a salary model could also decrease advisers’ compensation - which saves the brokerage firm money.
Moreover, these 300 advisers are meant to service smaller accounts, and they’re only a sprinkling of Merrill Lynch's 2,800 advisers. And industry "grid," a compensation plan brokerage firms use to reward their employees for raking in AUM and selling products, still lives on at Bank of America’s wealth management division. For the time being, Merill Edge's salary move is limited.
But one thing Merill Edge's salary move can get advisers both independent and at brokerages thinking about is whether salary compensation would hurt them. If they can't earn via product sales or AUM, how will they earn? How will they convince their clients - and their employers - they’re worth a high salary, or flat fee? They'll have to prove value beyond numerical returns.
As Diane Gabriel, Head of Next Generation Talent at Wells Fargo Advisors said to InvestmentNews, “It used to be the adviser with the most accounts wins… Today, it’s the adviser with the best relationships.”
