Legacy BofA Brokers May be Next Wave to Depart Merrill Lynch

Hundreds of legacy Bank of America brokers may form the next wave of departures from Merrill Lynch after many recently pocketed their retention bonuses, recruiters and former brokers say.

While plenty of attention is paid to the hundreds of Merrill brokers who quit since BofA acquired the firm in 2008, citing the negatives of working for a big bank, recruiters expect similar numbers to leave out of roughly 1,000 Merrill brokers who had worked for Bank of America Investment Services.

One big reason is brokers who signed three-year retention deals are now free to take the money and run, recruiters said. Also helping fuel the departures is annoyance at account maintenance fees that now apply to clients, say former brokers.

In October 2008, Bank of America brokers generating at least $350,000 in the prior year were awarded a 20 percent retention bonus payable over three years. Brokers generating $2 million, could receive up to 50 percent as a bonus.

Merrill brokers generating at least $1.75 million received seven-year packages equal to 100 percent of annual revenue.

The final check of the BofA packages was paid in February but came with no obligation to stay, said a recruiter familiar with the Merrill Lynch wealth management business. Dozens of these brokers have begun to depart.

"I know of several teams who are leaving. Some are just going to retire," said Margaret Lech-Loubet, a 28-year veteran of BofA and its predecessors who joined UBS wealth Management in Beverly Hills, California, last August.

One big motivator is that Merrill Lynch account fees, which had been waived for legacy BofA customers, took effect for the first time in January, former brokers said. These fees, ranging from $150 to $300 a year are applied to all accounts, even customers with tens of millions of dollars in assets.

"They keep grinding advisers on commissions and grinding clients on fees," said Bob Iglehart, a Palm Desert, California, adviser whose team left Merrill last year to join RBC Wealth Management. "This is the first year where Bank of America clients are going to get hit with account maintenance fees. A lot of clients are getting notices."

MAINTENANCE FEES

It's a standard practice among brokerages to charge "maintenance" fees on accounts that fall below certain minimums, to help firms cover their overhead expenses. Brokers on some occasions waive those fees to preserve a relationship.

Morgan Stanley Smith Barney charges an annual account fee ranging from $75 to $150 a year for households under $1 million in assets or clients who generate less than $10,000 of annual revenue. At Wells Fargo Advisors, the threshold is $250,000 in assets.

But it's another thing to assess such fees on clients generating thousands of dollars in fees and commissions, some former brokers said.

"Are you really going to charge a client like that $300?" said Lech-Loubet, who generates about $1.7 million of commissions a year trading $1.2 billion of bonds for clients. Lech-Loubet said she joined UBS because its municipal bond desk did a better job executing on trades to the benefit of her clients.

"As always, advisers have discretion over client fees," said Merrill spokeswoman Selena Morris. She also said advisers have access to multiple platforms and trading desks, an arrangement known as "open architecture" that offers investors better access and pricing for securities.

SOME LEGACY BROKERS THRIVE

There are also, to be sure, legacy BofA advisers who have thrived as part of Merrill, which has one of the strongest brands in financial services and has invested in technology and training to help its advisers boost revenue.

James Roeske, an adviser who started his career in 2000 at Merrill but jumped to BofA in 2003, said being part of Merrill again has helped his team amass $215 million in client assets and generate $2.3 million a year.

"Coming from the bank side, we always had greater banking capabilities but our brokerage platform was falling behind," he said. The Merrill deal "was an instant fix for me."

Bank of America rescued Merrill from a likely collapse during the 2008 financial crisis with a $50 billion takeover, but it was Merrill's iconic 16,000-strong brokerage that took the lead in wealth management.

Merrill's broker-dealer unit folded in 2,000 Bank of America advisers amassed through mergers with Security Pacific Bank, Montgomery Securities, NationsBank, FleetBoston and others.

Hundreds of these advisers left or were forced out after the merger. Like other branch-based brokers, they had benefited from in-house referrals and, on average, were less productive than Merrill's, said Bing Waldert, research director for financial services consulting firm Cerulli Associates.

Many bank-based brokers - a group that typically sells stocks, bonds and mutual funds to smaller investors - didn't fit the mold of a big Wall Street brokerage where advisers must develop their own book of business, Waldert said.

Merrill's Roeske acknowledged the loss of referrals is a challenge for brokers making the switch.

"If you're having clients handed to you, it's a lot different than exceeding the expectations of clients and then winning new business through them," Roeske said. (Reporting By Joseph A. Giannone; Editing by Walden Siew and Tim Dobbyn)