FundFire – Big Teams Break from Merrill Herd amid Culture Tensions
January 2015
The $6.5 billion defection from Merrill Lynch’s thundering herd this month is not an isolated incident. This loss is the latest in a series of big producer departures over the past six months.
Since July, Merrill Lynch has lost at least 33 advisors and advisor teams who collectively oversaw nearly $21 billion in client assets, according to a FundFire analysis of advisor moves reported since July.
Former advisors and recruiters cited many different reasons prompting the various moves. Several pointed to perceived cultural tensions that have taken root in the years following the acquisition by Bank of America. Others were apparently motivated by specific policy changes, such as Merrill cutting public pension clients. Some advisors described other individual reasons, such as wanting to move to the independent model.
Thinning Herd or Growing Force?
The news may not be all bad, however. Over the same period, the firm also hired at least 15 advisors from rivals, who collectively oversaw close to $4 billion in client assets at their previous firms. And those figures are not comprehensive, since many advisor moves go unreported. Merrill actually hired many more advisors than those counted above, according to a spokeswoman for the firm. Over the course of the full year 2014, the firm hired around 70 advisors that each held at least $100 million in assets under management and or had at least $1 million in annual production.
The percent of advisors that departed is less than one percent of the firm’s approximate $2 trillion asset base, says Merrill’s spokeswoman. “The financial results of our business have never been stronger and advisor turnover is at historic lows,” she writes in an emailed response to questions.
Indeed, the most recently reported data shows the firm adding 155 advisors in the third quarter. At that time, Merrill Lynch had 14,000 advisors, though that figure includes approximately 3,000 trainee advisors working through training and development programs, so the number of experienced advisors is lower, around 11,000.
And while some money may be walking out the door, Merrill’s spokeswoman asserts that “average production is substantially higher for those who joined versus those who left,” although she wasn’t able to provide average production figures for those who joined and those who left. Merrill Lynch reported average advisor productivity of $1.1 million for all advisors, and $1.4 million for experienced advisors in the third quarter.
Yet, while advisor moves are a common occurrence, and Merrill is not the only firm to lose advisors over the period, Merrill appears to have lost a greater number of large teams in recent months compared to its competitors, based on publicly reported moves analyzed by FundFire. The numbers below aren’t comprehensive, since many moves go unreported.
An analysis of reported advisor moves to and from other firms shows at least 20 advisors and teams with more than $5 billion in assets leaving Morgan Stanley since July. Yet during the same period, Morgan Stanley reported recruiting at least 17 advisors and teams with more than $14 billion in collective assets under management. A Morgan Stanley spokeswoman declined to comment.
For its part, Wells Fargo Advisors lost at least 12 advisors and teams with more than $2 billion in collective assets, and recruited at least 30 advisors with about $8 billion in collective assets, since July, based on publicly reported moves tracked by FundFire. A Wells Fargo spokeswoman said that the firm had more $1 million producers joining than leaving.
At UBS, at least 23 advisors and advisor teams who had overseen nearly $6 billion in collective assets have left since July, based on moves tracked by FundFire. UBS gained at least five advisors and teams with nearly $3 billion in collective assets under management over the period by FundFire’s count of publicly reported moves. By UBS’s own count, the firm added 61 advisors and teams with nearly $12 billion in collective assets under management between July and December, a spokesman said.
Motivations
Advisors and sources familiar with the matter indicate the moves away from Merrill were motivated by a variety of factors. Some advisors contacted expressed satisfaction with Merrill overall, citing factors such as a decision to move to the independent model.
One such advisor was, Phillip Pedrena, who left Merrill Lynch in October with his business partner Jesse Clinton, for Snowden Lane. The duo, which had reportedly advised on about $270 million in client assets at Merrill, was drawn to the firm’s hybrid registered investment advisor (RIA) model, Pedrena says.
“We weren’t unhappy with Merrill Lynch. We weren’t even looking for an opportunity,” Pedrena says. “It just happened kind of organically.”
Another advisor who opted to move to the independent model was David Christian, who left in March 2014, to found an RIA, Cable Hill Partners with partners Jeffrey Krum and Brian Hefele. That group had overseen $700 million in client assets at Merrill previously.
While Christian says he had a positive overall experience at Merrill, he first started thinking about making a move when he noticed a shift in the firm’s culture.
For the first few years following the Bank of America acquisition, branch offices were left pretty much alone, Christian says. “It took a few years before we started to notice differences. That’s when we looked up and decided to see what else was out there,” he explains.
After evaluating a range of options, the team ultimately decided to go the independent route, linking up to the Dynasty Financial platform in March of 2014.
The Culture Question
A perceived shift in culture resulting from Merrill Lynch’s gradual integration into Bank of America could be a factor behind some advisor moves, says Danny Sarch, a brokerage recruiter.
Since Merrill Lynch didn’t historically grow through acquisitions like many of the other wirehouse firms, advisors weren’t used to “seismic changes,” says Sarch. “Merrill was the most consistent for so many years. So the changes that have come about from Bank of America are seen as the most dramatic.”
Another former Merrill advisor, who asked not to be referenced by name, points to management changes in the years following the Bank of America acquisition as one factor prompting him to move.
“The decline in leadership was gradual, and then sudden, as they continued to take more and more of the quality managers out of the system,” the former advisor says. “The managers that were on the Merrill side, that were advocates for advisors, somehow ended up on the outside looking in, and are no longer with the firm.”
Another former Merrill producing branch manager, who asked not to be named, pointed to leadership departures following the merger, a cultural shift, and the “erosion of the brand,” as factors that prompted him to leave. “It used to be that Merrill Lynch had this incredible brand and a lot of respect,” he says. “I don’t think Merrill Lynch means as much today.”
Merrill’s policy not to pay advisors for small accounts under a $250,000 threshold has driven some advisors serving smaller clients to look elsewhere, says a second recruiter, speaking on background.
Under the 2015 compensation plan, Merrill stopped paying advisors for “grandfathered” legacy accounts with less than $250,000. If 80% of an advisor’s book of business is wealthier clients, Merrill will still pay advisors 20% of the fees and commissions on accounts below the $250,000 threshold, as reported. While the firm stopped paying advisors for new accounts with less than $250,000 in assets several years ago, it had previously paid advisors for certain legacy accounts that fell beneath that threshold.
Other advisors have been frustrated by the emphasis on cross-selling bank loans, says the second recruiter. While incentives for cross-selling may strike a nerve for some advisors, in the long run, it is likely to keep advisors more closely tethered to their firms, the recruiter says. “Once advisors anywhere start to get involved in lending, that kind of business is more entrenched and harder to move,” he says.
“During the most recent period, we continued to build our business, along with client trust, through a goals based platform focusing on our clients’ needs and life priorities,” a Merrill Lynch spokeswoman said in an emailed response. “Our clients have responded by strengthening their relationships with our advisors and across our organization and entrusting us with more of their business.”
Public Pension Fallout
Merrill’s decision to stop serving public pension clients last year appears to have led to at least one of the big moves.
In September, the Brice Group, which had overseen $4.5 billion in client assets, jumped ship for Morgan Stanley. That move was at least partially motivated by Merrill Lynch earlier this year directing advisors to drop public pension clients by September, according to two separate sources familiar with the matter.
The firm’s position on public pensions has influenced multiple moves, says John Beirne, founding partner and CIO of Beirne Wealth Consulting, and a former Merrill Lynch advisor, who left the firm in 2012.
“There have been a significant number of people, such as myself, that have left due to the fact that Bank of America has chosen not to support the public fund market,” Beirne says.
The firm had initially told a group of advisors that they would be able to continue serving public pension clients, but Beirne says he was concerned that the firm would eventually change the policy, which led his decision to move. “We felt it would be a matter of time before they would change [the public pension policy] completely,” he says.
Follow @SnowdenLane
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Since July, Merrill Lynch has lost at least 33 advisors and advisor teams who collectively oversaw nearly $21 billion in client assets, according to a FundFire analysis of advisor moves reported since July.
Former advisors and recruiters cited many different reasons prompting the various moves. Several pointed to perceived cultural tensions that have taken root in the years following the acquisition by Bank of America. Others were apparently motivated by specific policy changes, such as Merrill cutting public pension clients. Some advisors described other individual reasons, such as wanting to move to the independent model.
Thinning Herd or Growing Force?
The news may not be all bad, however. Over the same period, the firm also hired at least 15 advisors from rivals, who collectively oversaw close to $4 billion in client assets at their previous firms. And those figures are not comprehensive, since many advisor moves go unreported. Merrill actually hired many more advisors than those counted above, according to a spokeswoman for the firm. Over the course of the full year 2014, the firm hired around 70 advisors that each held at least $100 million in assets under management and or had at least $1 million in annual production.
The percent of advisors that departed is less than one percent of the firm’s approximate $2 trillion asset base, says Merrill’s spokeswoman. “The financial results of our business have never been stronger and advisor turnover is at historic lows,” she writes in an emailed response to questions.
Indeed, the most recently reported data shows the firm adding 155 advisors in the third quarter. At that time, Merrill Lynch had 14,000 advisors, though that figure includes approximately 3,000 trainee advisors working through training and development programs, so the number of experienced advisors is lower, around 11,000.
And while some money may be walking out the door, Merrill’s spokeswoman asserts that “average production is substantially higher for those who joined versus those who left,” although she wasn’t able to provide average production figures for those who joined and those who left. Merrill Lynch reported average advisor productivity of $1.1 million for all advisors, and $1.4 million for experienced advisors in the third quarter.
Yet, while advisor moves are a common occurrence, and Merrill is not the only firm to lose advisors over the period, Merrill appears to have lost a greater number of large teams in recent months compared to its competitors, based on publicly reported moves analyzed by FundFire. The numbers below aren’t comprehensive, since many moves go unreported.
An analysis of reported advisor moves to and from other firms shows at least 20 advisors and teams with more than $5 billion in assets leaving Morgan Stanley since July. Yet during the same period, Morgan Stanley reported recruiting at least 17 advisors and teams with more than $14 billion in collective assets under management. A Morgan Stanley spokeswoman declined to comment.
For its part, Wells Fargo Advisors lost at least 12 advisors and teams with more than $2 billion in collective assets, and recruited at least 30 advisors with about $8 billion in collective assets, since July, based on publicly reported moves tracked by FundFire. A Wells Fargo spokeswoman said that the firm had more $1 million producers joining than leaving.
At UBS, at least 23 advisors and advisor teams who had overseen nearly $6 billion in collective assets have left since July, based on moves tracked by FundFire. UBS gained at least five advisors and teams with nearly $3 billion in collective assets under management over the period by FundFire’s count of publicly reported moves. By UBS’s own count, the firm added 61 advisors and teams with nearly $12 billion in collective assets under management between July and December, a spokesman said.
Motivations
Advisors and sources familiar with the matter indicate the moves away from Merrill were motivated by a variety of factors. Some advisors contacted expressed satisfaction with Merrill overall, citing factors such as a decision to move to the independent model.
One such advisor was, Phillip Pedrena, who left Merrill Lynch in October with his business partner Jesse Clinton, for Snowden Lane. The duo, which had reportedly advised on about $270 million in client assets at Merrill, was drawn to the firm’s hybrid registered investment advisor (RIA) model, Pedrena says.
“We weren’t unhappy with Merrill Lynch. We weren’t even looking for an opportunity,” Pedrena says. “It just happened kind of organically.”
Another advisor who opted to move to the independent model was David Christian, who left in March 2014, to found an RIA, Cable Hill Partners with partners Jeffrey Krum and Brian Hefele. That group had overseen $700 million in client assets at Merrill previously.
While Christian says he had a positive overall experience at Merrill, he first started thinking about making a move when he noticed a shift in the firm’s culture.
For the first few years following the Bank of America acquisition, branch offices were left pretty much alone, Christian says. “It took a few years before we started to notice differences. That’s when we looked up and decided to see what else was out there,” he explains.
After evaluating a range of options, the team ultimately decided to go the independent route, linking up to the Dynasty Financial platform in March of 2014.
The Culture Question
A perceived shift in culture resulting from Merrill Lynch’s gradual integration into Bank of America could be a factor behind some advisor moves, says Danny Sarch, a brokerage recruiter.
Since Merrill Lynch didn’t historically grow through acquisitions like many of the other wirehouse firms, advisors weren’t used to “seismic changes,” says Sarch. “Merrill was the most consistent for so many years. So the changes that have come about from Bank of America are seen as the most dramatic.”
Another former Merrill advisor, who asked not to be referenced by name, points to management changes in the years following the Bank of America acquisition as one factor prompting him to move.
“The decline in leadership was gradual, and then sudden, as they continued to take more and more of the quality managers out of the system,” the former advisor says. “The managers that were on the Merrill side, that were advocates for advisors, somehow ended up on the outside looking in, and are no longer with the firm.”
Another former Merrill producing branch manager, who asked not to be named, pointed to leadership departures following the merger, a cultural shift, and the “erosion of the brand,” as factors that prompted him to leave. “It used to be that Merrill Lynch had this incredible brand and a lot of respect,” he says. “I don’t think Merrill Lynch means as much today.”
Merrill’s policy not to pay advisors for small accounts under a $250,000 threshold has driven some advisors serving smaller clients to look elsewhere, says a second recruiter, speaking on background.
Under the 2015 compensation plan, Merrill stopped paying advisors for “grandfathered” legacy accounts with less than $250,000. If 80% of an advisor’s book of business is wealthier clients, Merrill will still pay advisors 20% of the fees and commissions on accounts below the $250,000 threshold, as reported. While the firm stopped paying advisors for new accounts with less than $250,000 in assets several years ago, it had previously paid advisors for certain legacy accounts that fell beneath that threshold.
Other advisors have been frustrated by the emphasis on cross-selling bank loans, says the second recruiter. While incentives for cross-selling may strike a nerve for some advisors, in the long run, it is likely to keep advisors more closely tethered to their firms, the recruiter says. “Once advisors anywhere start to get involved in lending, that kind of business is more entrenched and harder to move,” he says.
“During the most recent period, we continued to build our business, along with client trust, through a goals based platform focusing on our clients’ needs and life priorities,” a Merrill Lynch spokeswoman said in an emailed response. “Our clients have responded by strengthening their relationships with our advisors and across our organization and entrusting us with more of their business.”
Public Pension Fallout
Merrill’s decision to stop serving public pension clients last year appears to have led to at least one of the big moves.
In September, the Brice Group, which had overseen $4.5 billion in client assets, jumped ship for Morgan Stanley. That move was at least partially motivated by Merrill Lynch earlier this year directing advisors to drop public pension clients by September, according to two separate sources familiar with the matter.
The firm’s position on public pensions has influenced multiple moves, says John Beirne, founding partner and CIO of Beirne Wealth Consulting, and a former Merrill Lynch advisor, who left the firm in 2012.
“There have been a significant number of people, such as myself, that have left due to the fact that Bank of America has chosen not to support the public fund market,” Beirne says.
The firm had initially told a group of advisors that they would be able to continue serving public pension clients, but Beirne says he was concerned that the firm would eventually change the policy, which led his decision to move. “We felt it would be a matter of time before they would change [the public pension policy] completely,” he says.
Follow @SnowdenLane
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