Merrill Recruiting Loan Balances Plunged Amid Hiring Freeze

May 11, 2021

Recruiting loan balances at Merrill Lynch Wealth Management have plummeted over the past three years as the firm retrenched from the veteran broker recruiting wars to focus on internal growth. 

Merrill Lynch had $588 million in outstanding “upfront” loans to financial advisors at the end of 2020, down 46.5% from $1.1 billion at the end of 2017 when it froze its experienced broker hiring, according to annual broker-dealer FOCUS reports filed with the Securities and Exchange Commission. 

The loans, which are structured as promissory notes based on the broker’s annual revenue and are forgiven over a period of several years as long as the broker remains at the firm, were down 23% from $764 million in 2019, according to the filings. They have continued to fall even as upfront loans have ticked up or stagnated over the past year at rivals who returned to the hiring pool. 

Bank of America spokeswoman Julia Ehrenfeld confirmed the loan figures relate to recruiting payments and said the downward trajectory “reflects the shift in our strategy to focus on organic growth.” 

“We continue to grow and bring in talent, with an emphasis on early career advisors and geographically strategic hires,” Ehrenfeld wrote in an emailed statement. “This shift in strategy has enabled us to reinvest in our people, platform and capabilities, which furthers our ability to best serve clients.”

The debt also fell as Merrill pivoted away from upfront loans to instead guaranteed salaries for novice brokers it had hired through its Accelerated Growth Program–initiating that approach in 2017. The deals, which go to relatively smaller producers with under 12 years of experience, pay out an annual salary over five years, which means none of their costs show up in the FOCUS report tally, according to a person familiar with the accounting and compensation consultants. 

The decline in Merrill Lynch’s recruiting loans “could reflect their greater emphasis on training their own,” said Andy Tasnady, a compensation consultant with Tasnady & Associates in Long Island, New York. 

“A lot of their growth has come through their internal training channel and their close coordination with the Merrill Edge and the Bank of America banking efforts,” Tasnady said. 

Merrill has also hired some veterans through its community markets program targeting more rural areas far from Bank of America branches, and some recruiters have said its hiring expenses could tick up after a senior executive’s comments last month that it’s interested in selectively hiring more seasoned brokers in key markets such as San Francisco and Florida. 

The continued decline at Merrill comes as recruiting loans have been climbing at some of its wirehouse competitors, including Morgan Stanley Wealth Management and UBS Wealth Management USA, which each returned to the market over the past year after slashing hiring budgets in 2017 and 2016, respectively. 

Morgan Stanley reported $3.24 billion in recruiting loans at the end of 2020, down 22.5% over the three-year span but up 8.7% from 2019 as the firm revived its recruiting efforts last year, according to its 10-K filings. Those loans peaked at $5.8 billion in 2010, the year after Morgan Stanley bought Smith Barney, but may be higher because they include certain retention offers given to existing advisors, according to the 10-K filing.

UBS Wealth Management USA whittled its recruiting loan balances by 28.6% to $1.87 billion at the end of 2020 from $2.62 billion at the end of 2017. The decline has stalled sequentially in the past two quarters, however, as UBS also renewed its recruiting push and has been hiring multi-million dollar…