David Darnell tells Merrill Lynch advisors he won't mess with their pay

David Darnell spent his first day on the job as Sallie Krawcheck’s replacement explaining that there’s one major line item on the BoA profit-and-loss statement he’s not going to touch – compensation paid to financial advisors, according to Bank of America. See: Merrill Lynch brokers brace for sweeping comp changes as Sallie Krawcheck departs BoA and takes her advocacy with her.

Many of the comments were delivered to Merrill Lynch financial advisors yesterday via a series of conference calls, according to Selena Morris, spokeswoman for Bank of America in New York, who handles inquiries related to Merrill Lynch. Morris said she had no transcripts of those calls available, but that Darnell, the company’s new co-chief operating advisor who oversees wealth management, drove the point home on repeated occasions.

Some industry observers don’t believe it. See: A memo to Merrill Lynch brokers and customers from an executive who’s walked in Sallie Krawcheck’s shoes.

“David Darnell has made it very clear that neither he nor BAC has any intention of changing advisor compensation. Contrary to reports by bloggers, recruiters, etc., this issue has never been on the table and is not on the table now,” Morris wrote in an e-mail

Death by a thousand cuts

Recruiters were quick to agree that not even the most clueless banker would change the Merrill broker comp system – at least not explicitly or immediately.

“You’d have to be an executive so removed you’d have to be an absolute idiot to do that,” says Danny Sarch, principal of Leitner Sarch Consultants. of White Plains, N.Y. On the other hand, he quips, “It would be the best thing that ever happened to me.”

John Furey: A transition away from
Merrill would be more palatable versus
losing or even having to supplement
support staff even further.

But in lieu of overt action, banking executives may well implement changes that will function as de facto downgrades in compensation, says Scott Miller, president of FirstPoint Partners, LLC of Solana Beach, Calif. Miller worked for Merrill Lynch for six years before spending the last 17 years recruiting on behalf of LPL Financial. He formed FirstPoint this year to recruit and consult independently. See: Two former LPL execs set up a breakaway boutique that works with Raymond James and Schwab, among others.

“They’re not going to upset the long-term [brokers] in a big way. They drip things out,” says Miller. “The bank’s objective is to cut costs. It may not be a cut in pay but in the services provided by assistants. It’s more behind the scenes but it affects how advisors spend their time. They do more sales assistant work. They pull more money out of their pockets if they want to do these things.”

Out of pocket

John Furey, principal of Advisor Growth Strategies, LLC, says these concerns are for real.

Danny Sarch: You’d have to be
an executive so removed you’d have
to be an absolute idiot to
[cut comp.]

“Reduction in support staff is a very valid concern. Advisors are less concerned about their assistants, but more concerned about [home office] support staff being impacted. One advisor said to me today: 'I hope they don’t start tinkering with our expense model given our profitability.’

“Many advisors supplement their client assistants’ compensation out of their own pocket. Any additional cost burden would hurt. Some of these assistants have been with larger teams for years, so I think a transition away from Merrill would be more palatable [for advisors] versus losing or even having to supplement support staff even further.”

BoA’s Morris expressed skepticism about Darnell walking back services provided by assistants, given his history of enhancing service.

“He’s committed to serving clients and that [would] cut into serving clients,” Morris said in an interview.

Fears on top of fears

Of equal concern, Merrill may also require brokers to cross-sell quantities of bank products to qualify for bonuses, Miller adds.

Scott Miller: It may not be
a cut in pay but in
the services provided by assistants. It’s
more behind the scenes but it
affects how advisors spend their time.

Furey is also hearing about such concerns from financial advisors but says there is another anxiety that looms even larger.

“What is making advisors nervous is they are separating investment banking and bringing Merrill closer with retail banking distribution. If there are changes with compliance – that will be the last shoe to drop.” See: This Merrill Lynch team leader broke away for fear of what might happen under Bank of America.

Sarch has heard that one thing that caused Krawcheck to fall out of favor with Merrill brokers was her willingness to say straight to their faces that their payouts were not being shrunk on the margins.

Lots of chatter

But despite Darnell’s efforts to calm the waters, there continues to be an unusual amount of chatter from the ranks as they work to come to grips with the latest shake-up. Sarch speculates that part of the uproar is caused by another, unspoken, issue.

“There was pent-up [desire] to [make noise about] the stock price falling to $7,” he says. “That’s the elephant in the room.”

Bank of America shares closed trading at $14.69 as recently as March 8. The shares jumped yesterday by 49 cents, or 7%, after BoA CEO Brian Moynihan announced his company’s streamlining.

Where’s the exit?

Indeed, the past 10 days have brought about a subtle-but-important change in the recruiting climate at Merrill Lynch, according to Michael Papedis, managing director of business development for HighTower Advisors in Chicago.

“Advisors are calling us directly. They’re not sitting back and waiting for someone to go to them. We have been very busy the last seven to 10 days.”

Mike Papedis: Advisors are calling us
directly. They’re not sitting back and
waiting for someone to go to
them. We have been very busy
the last seven to 10 days.

These concerns have spread to advisors at other wirehouses, according to Miller. As a wirehouse begins to cut expenses concerning assistants or other support services, its competitors (as with the airlines with fare hikes) are quick to follow the lead.

Good faith

One thing – and it’s a big thing – that Merrill brokers probably don’t have to fear is a sale of the company, Sarch says.

“They’ve done so much to integrate [the bank and broker-dealer] that it’s hard to believe they’d spin it off.”

Sarch says that Bank of America has shown good faith to Merrill brokers in terms of giving them sales leads from the banking side of the business and giving clients a tab on their desktop to see both bank and brokerage deposits. He adds that it took several years before CitiGroup was able to provide that holistic view to Smith Barney clients.