Merrill Lynch brokers brace for sweeping comp changes as Sallie Krawcheck departs BoA and takes her advocacy with her

It's like 2008 all over again with some brokers just wanting out as clients question choice of employer, recruiter says

Tuesday 9.6.11 by Brooke Southall

Brooke’s Note: Mindy Diamond, who recruits Merrill Lynch brokers; Tim Welsh, who once worked at Merrill; and a former high-level Merrill exec who comments for RIABiz on special occasions all lent their perspective regarding this unforeseen event — as did Fred St. Laurent, who previously wrote :Sallie Krawcheck, A Recruiter’s Nightmare. One thing is for certain, this morning many more Merrill Lynch brokers are seriously entertaining lives as RIAs.

Mindy Diamond had long since left the office and was contemplating a semi-peaceful evening at home last night. That’s when her cell phone starting buzzing and buzzing and buzzing.

When brokers heard the news that wealth management division head Sallie Krawcheck had departed Merrill and had been replaced by someone from the banking side of Bank of America, they needed to talk to their recruiter the way a desperate home seller needs reassurance from their real estate broker.

The slew of incoming calls to Diamond Consultants all came from Merrill Lynch advisors with big books of business who have been kicking around the idea of breaking away – some of them for years, Diamond reported.

In the statement announcing Krawcheck’s departure, Bank of America CEO Brian Moynihan also revealed that Tom Montag and David Darnell had been appointed co-chief operating officers. The shakeup has Montag running investment banking and operations that serve companies and institutional investors. Darnell will oversee matters regarding individual customers – everything from credit cards, mortgages and deposits to wealth management.

“Today is a significant step in the continued transformation of our company,” Moynihan said in the statement. “David and Tom are leaders skilled at driving profitability and growth by focusing their businesses on all we can do for customers. They are accountable now for delivering our entire franchise to all our customers and clients … Simplifying at the scale in which we operate requires difficult decisions … We wish [Krawcheck] well and look forward to [her] continued leadership and business successes in the future.”

Mindy Diamond: There will be mass-exodus-times-10 from Merrill if they mess with compensation.
Mindy Diamond: There will be mass-exodus-times-10
from Merrill if they mess with

The devil you know

In Diamond’s opinion, no tears will be shed on account of Krawcheck’s abrupt exit. On the contrary, advisors’ initial negative reactions when she assumed the post have since been exacerbated by Krawcheck’s inaccessibility and the scant amount of time she spent visiting branches.

But while Krawcheck may not have won any popularity contests, advisors at least saw her as one of their own, coming up as she did from the brokerage side of the business.

“Sallie was the only buffer between the brokers and the bankers,” said Fred St. Laurent, managing director of recruiting firm Chase Professionals. “Now the bankers are in charge of a machine that she tuned to bring in $5 billion since 2009. If anybody at Merrill is in the good riddance crowd, they won’t be for long.”

Indeed, advisors know banks that own brokerages would love nothing more than to scrap the old compensation system at brokerage firms and replace it with a salary-and-bonus structure. Like her or not, Krawcheck was seen as a bulwark against that dreaded outcome. See: David Darnell tells Merrill Lynch advisors he won’t mess with their pay

Brian Moynihan: Simplifying at the scale in which we operate requires difficult decisions.
Brian Moynihan: Simplifying at the scale
in which we operate requires difficult

An ominous passage in Moynihan’s statement is not likely to calm such fears.

“Removing a layer of operations management, aligning leaders with our customer groups, and simplifying the organization reflect the primary objectives of the Project New BAC, begun in April 2011. These and other organizational improvements will eventually take effect across the consumer, home loans and support areas covered by phase I of New BAC, and are expected to result in significant expense reductions as the first phase concludes in coming weeks. Phase II of New BAC will begin in October and conclude in March 2012,” the release reads.

Compensation consternation

With Bank of America’s shares plunging and its purchase of Countrywide Financial Corp. giving rise to fears that the bank is still loaded with toxic debt, all options are on the table down at the company’s Charlotte, N.C. headquarters, according to a former Merrill Lynch executive who asked not to be identified. See: Merrill Lynch and Bank of America cultural tension may spin out a new round of breakaways, recruiters say.

“Think you have seen cost cutting at BOA-ML in the past? You haven’t seen anything yet,” he writes in an e-mail. “Just you wait and see – the new sheriff in town has been a commercial banker his entire career. The game is about to change in a big way.”

Indeed, using Krawcheck’s removal as a cautionary tale, the new leader may view changing comp as the path to greater job security. The name of the game is “grow your assets and/or cut your costs – or we cut your head,” the former Merrill exec says.

Diamond, however, believes it’s not (quite) time to panic. The reaction to any change in compensation cannot be overstated, she says. “This will be mass-exodus-times-10 if they mess with compensation.”

Fred St. Laurent: Sallie was the only buffer between the brokers and the bankers.
Fred St. Laurent: Sallie was the
only buffer between the brokers and
the bankers.

The culture lives on

Whiteboard calculations aside, Krawcheck may never have had much job security at Merrill Lynch to begin with, according to Tim Welsh of Nexus Strategy who worked there in the 1990s. See: Six things to consider when reading Sallie Krawcheck’s comments in interviews.

“I think that no one who didn’t rise through the broker ranks has ever been able to successfully lead Merrill. It’s always been a 'we’ll tolerate you, but not follow you’ approach by the Thundering Herd for any non-broker executive. Even now that ML is part of Bank of America, that culture lives on,” says Welsh.

“As for Sallie, she hasn’t been able to keep any job in the wealth management business, so there shouldn’t be too many surprises here. I can still see her trying to defend the wirehouse model, saying that Merrill really wasn’t losing to the independent RIA channel, yet the facts completely refuted her claims. Ultimately, these realities caught up to her, particularly in the recent volatile markets and the rapidly deteriorating situation at B of A.”

Uneasy lies the head

Based on last night’s press release, Krawcheck seemed resigned to her fate.

“I am pleased with the work the team has done, in particular the strong performance of the business,” she is quoted as saying. “It has been an honor to lead Bank of America Global Wealth and Investment Management during a challenging time.”

But in this fraught environment no one can afford to be complacent.

“As for Montag, he is a former non-broker Goldman executive, so I expect him to suffer a similar fate three-to-five years from now,” says Welsh.

Unrelated to Krawcheck’s ouster, Diamond says her phone was already jumping off the hook over the past eight days because of all the bad news related to Bank of America and its share price. Many advisors see January 2012 as an inflection point because their retention bonuses will have been paid in full. Up until now, Merrill troops have been postponing decisions about breaking away until they have cash in hand, thus giving Bank of America a chance show that it was sincere about leaving Merrill Lynch culture intact. “Now advisors are saying, 'I can’t wait around [to collect the last few dollars of the retention bonuses]. I can’t lose my clients,’” Diamond says.

Tim Welsh | Mindy Diamond | Sallie Krawcheck | Fred St. Laurent

Merrill Lynch | Nexus Strategy | Diamond Consultants