We’ll forgive you if you were a bit confused by the story this morning about a “culture clash” between the Merrill Lynch brokers and Bank of America. Fortunately, we did some digging and found out what is really going on.
As background to all this, recall that Bank of America has promised big bonuses to brokers who stay at the combined bank for the next several years—but limited those bonuses to the top earners. The New York Posts today reports some brokers aren’t getting retention bonuses at all, and those garnering less than $1 million in fees are dissatisfied. Brokers also object to the rules about not talking to clients after the brokers leave the firm. Rival brokerages are moving in to hire upset Merrillistas.
We’re told by sources familiar with the situation is a concern over the way the Merrill bonuses are structured. Merrill brokers fear that the retention bonus and annual bonus structure at Bank of America might encourage churning or pressure them into getting clients into products earning more fees for the firm. This kind of policy, coming in a year when clients would have done well by staying out of stocks or even phony cash-equivalents like auction rate securities, would penalise brokers who delivered the most profitable advice to clients.
Merrill’s brokers pride themselves on the loyalty to their customer and believe they are rewarded for this by customers loyalty to them, are worried that the new bonus structure could endanger the Merrill franchise.
“There’s a good chance that Merrill Lynch could lose some of its best brokers, brokers that told clients to get out of the markets,” Charlie Gasparino has said on CNBC. Merrill says it may lose as many as 15% of its brokers, while others say the number could be twice as much.
Why does this matter? Well, in an environment in which Wall Street firms are struggling to find a profit engine now that the IPO market, credit market and M&A market have stalled, brokers are once again at the centre of Wall Street.
“The lesson here is that good old-fashioned stockbroking has managed to survive the financial crisis pretty well,” Felix Salmon writes. “Investment bankers have seen their business dry up entirely in many cases, but stockbrokers still have their clients, and those clients are even more concerned about the market than they have been in the past. And in general, the more focused that clients are on the market, the more money the brokers make. So while institutional Wall Street is doing badly, retail-facing Wall Street still seems to be doing OK.”
Merrill’s brokers are worried that Bank of America’s plans may end up killing the retail business by breaking the trust of customers.
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