In a move that will set pulses racing among stockbrokers, the thundering herd at Merrill Lynch has raised the bar on signing bonuses as it attempts to rebuild its lucrative wealth management franchise.
Merrill Lynch is attempting to lure financial advisors from rivals by offering packages that pay recruits 140 per cent of their previous year's income, and another 200 per cent bonus over five years if the broker hits performance goals, according to an article Friday in the U.S. edition of the Financial Times. According to the FT, this is a dramatic escalation in the bonus sweepstakes.
Stockbrokers have always been able to negotiate some sort of transition package when they jump from one dealer to another. Merrill Lynch is simply upping the ante. What this U.S. market leader does will be closely watched by Canadian firms.
Industry executives are always quick to profess their deep dislike for signing bonuses, but most of the Street makes these payments in some form.
In theory, the signing bonus is supposed to be a bridge. The broker is being compensated for lost income, as fees and commissions dry for weeks or months as clients transfer accounts, or pick up a new financial advisor at the former firm.
While that's the theory, in practice, these signing bonuses have become a major recruiting tool. Aggressive domestic firms have paid 100 per cent or more of a stockbroker's previous year's income to lure them to a new platform. And CIBC awarded long-term payouts to its stockbrokers after acquiring Merrill Lynch's Canadian retail sales force a few years back.
The latest Merrill Lynch initiative, coming on the heels of the firm's wrenching merger with Bank of America, will likely see all sorts of firms throw more money at top financial advisors.
The appeal to individual stockbrokers is obvious. But it's never been clear that bonus payments make economic sense for the dealers - they certainly hurt short-term profitability.