Huge changes are planned for Bank of America’s Merrill Lynch. The head of the legendary 16,000 person brokerage unit–often referred to as “the thundering herd”–is being ousted in favour of a Bank of America insider, according to a person familiar with the matter. Changes in the way brokers are compensated will likely make pay less transparent and less reliable.
Many brokers are still unaware of the planned changes, which have not been announced internally or to the public. It is always possible that last minute maneuvers could result in Sontag keeping his position or the compensation changes being halted.
Dan Sontag, a 30 year veteran of Merrill Lynch who now heads it Global Wealth & Investment Management unit, will leave the firm shortly, sources says. He was elevated to the top position at Merrill’s brokerage after the departure of Bob McCann following the merger with Bank of America. His replacement is likely to be Keith Banks, who ran the BofA wealth management business prior to the merger. Banks was essentially demoted and placed under Sontag following the merger, a move many believed was aimed at reassuring Merrill brokers that they would be treated well in the new corporate structure.
rumours that Sontag, who worked closely with McCann for years and was seen as an ally of the Merrill financial advisers, will be replaced by Banks, who is viewed as an ally of the Bank of America executives, is already roiling the financial advisers.
“There’s a theory that the financial advisers have nowhere else to go,” a person familiar with the situation said. “This is wrong. Morgan Stanley Smith Barney and Goldman are hiring. The FAs are all going to leave.”
Perhaps more important than the managerial reshuffle are the changes planned to the way financial advisers are compensated. At Merrill Lynch, the FAs were paid according to what is called an “eat what you kill” basis. Brokers accumulated points* for selling products to customers and bringing more money under management of Merrill. Each month, brokers were paid based on these points*. [Readers have referred to these as “production credits”–ed.] It was a highly transparent form of compensation that brokers had come to rely upon.
The new system would pay the FAs closer to the way investment bankers are paid, with a small annual salary and a larger end of year bonus. The bonus, however, may be limited by government restrictions on pay at firms operating with TARP funding. It is thought that the controversial retention bonuses Bank of America promised brokers, promises which predated the TARP pay restrictions, may be exempt from these limits.
The change in pay is described as “revolutionary” by insiders. For years, many Merrill FAs have viewed themselves as partners with the firm, almost outside consultants who share revenue from their clients with the firm in exchange for use of the Merrill brand and back-office services. Under the new compensation structure, they will be treated much more like ordinary employees.
“This is really pissing people off,” said one insider. “These guys all across the country are basically being told they are being turned into branch offices of Bank of America.”
See Also: BOFA Denies Our Story About Shakeup
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.