New Worries Over Broker Pay at Bank of America
The ousting of Sallie Krawcheck from the top of Bank of America’s wealth-management business has many financial advisers concerned that the structure of their compensation may be radically changed, according to several people at the firm.
Merrill Lynch financial advisers are paid commissions based on client assets and fees. Ever since Merrill was acquired by Bank of America there has been concern that the fee structure would be converted to the salary plus discretionary bonus system that is used in Bank of America’s other wealth-management business, U.S. Trust.
After some initial skepticism, Krawcheck won over the loyalty of Merrill’s financial advisers—in part because she reassured them that she wouldn’t change the compensation structure.
Krawcheck assured financial advisers that a change in compensation was “simply not on the table.” The attrition rate—brokers leaving to join rivals or go independent—that rose immediately after the acquisition fell dramatically under Krawcheck’s leadership.
Many Merrill brokers see any change as an assault on their independence—and their pocket books. Many do not want senior management to have discretion when awarding bonuses. They suspect that ultimately their compensation level would drop if put under the U.S. Trust system.
Some within Bank of America regard the Merrill brokers as “dinosaurs” and think that the compensation model is out of date.
Another broker concern has been cross-selling—pushing products developed by other parts of the bank on brokerage clients. Many brokers resist this because they feel it can compromise their loyalty to clients. But it is one of the core synergies that drives the creation of a megabank like Bank of America.
The fight over cross-selling led to the resignation earlier this year of Lyle LaMothe, a twenty-year Merrill veteran who had become the head of US wealth management under Krawcheck. Although officially he left for “personal reasons,” sources at the firm said he left after clashing with Bank of America’s management over efforts to get Merrill brokers to sell more banking products to their clients
Krawcheck had a reputation as a defender of client interests, resisting pushes from other parts of the bank to twist the arms of brokers to put their clients into other bank products.
With Krawcheck gone, many brokers wonder if compensation and cross-selling will become issues once again.
“Is David Darnell going to fight for us the way Sallie did? I really doubt Moynihan brought in a big broker advocate,” one broker said, referring to the former head of commercial banking at Bank of America who will now lead all consumer facing businesses, including wealth management.
At the top of Merrill wealth management totem poll, just below Darnell, will be John Thiel—who was tapped to replace LaMothe earlier this year. Thiel was not Krawcheck’s first choice for the job—but he was Moynihan’s, according to a person close to the matter. Indeed, his elevation was seen as a sign that Krawcheck was losing control.
Although Thiel began his career in Merrill brokerage, he moved over to private banking. He is considered a “products guy” —someone who can develop and sell new banking products—rather than a “financial advisory” guy.
In short, Thiel is also considered to be unlikely to go to the mat for brokers.
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