Who are High Net Worth Specialists?

Merrill Lynch High Net Worth Specialists: In the late 1990s, Merrill Lynch formed a group of five high net worth client and product specialists to assist financial advisors in serving this client segment. At the time, according to long-established Merrill Lynch tradition, financial advisors got to keep any clients whom they prospected. As a result, high net worth clients, including some very high profile corporate executives, celebrities and professional athletes, were broadly distributed among the firm’s corps of financial advisors, rather than concentrated in the hands of a relative few financial advisors whose books of business were packed with such clients. Accordingly, this broad distribution meant that the typical high net worth client at Merrill Lynch was served by a financial advisor who was inexperienced with clients of this sort.

Separate Sales Channels, Pro and Con: The policy at several competing firms was to place high net worth individuals in the hands of financial advisors who were experienced with such clients. At these firms, inexperienced financial advisors either would be under outright prohibitions against prospecting such clients or would have to surrender them, with some scheme to compensate them for bringing in these clients, either through one-time payments or by getting a share of the compensation earned by the second financial advisor. Both approaches were rejected by Merrill Lynch management.

Instead, Merrill Lynch management felt strongly that the current incentive structure, in which all financial advisors, regardless of experience or size of book, could aspire to landing a big client and reaping the benefits thereof, was an essential part of the corporate and sales force cultures.

Backgrounds of the Specialists: Instead, Merrill Lynch management agreed to form the aforementioned group of high net worth specialists, who would assist financial advisors in prospecting high net worth clients and in formulating strategies for dealing with their unique investing needs. These specialists had varied backgrounds, including:

  • Private banking
  • Family offices
  • Trust services
  • Investment banking
  • Securities trading

Compensating High Net Worth Specialists: Part of the challenge in assembling this group of high net worth specialists was that they all were from career paths and job classifications that commanded significantly higher compensation packages than either the typical financial advisor or other categories of specialists in the firm. Management’s decision to base their incentive compensation on the net new client assets that they gathered proved to be problematic in these respects:

  • There was no way to determine definitively how much of the new assets gathered really were attributable to their efforts, as opposed to those of the financial advisors whom they assisted.
  • The incentive compensation triggered by the formula agreed upon by senior management proved to be orders of magnitude beyond what was expected; a move to change the incentive system retroactively thus engendered much ill will among the specialists.

Spotty cooperation among the specialists in assisting data tracking efforts added to management’s dissatisfaction with them, eventually causing the demise of the initiative.

Later, management decided to modify the compensation plan for high net worth specialists, adjusting it to include incentives for selling particular products to these clients, with these incentives calibrated to reflect the relative profitability of various products as determined by the firm’s product profitability measurement system. The specialists balked at this adjustment, on the basis that it was shortsighted, putting the firm’s short term profitability ahead of the client’s best interests, a strategy that was bound to create client dissatisfaction and defections in the long run. Instead, the specialists preferred the more neutral asset gathering metric, which gave them incentives to act in a more fiduciary manner towards the clients.

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