by Jerry Marks, Marks & Klein, LLP 

As pressure mounts on Wall Street to go to zero commissions, large broker-dealers are forced to further loosen their dependency upon the fading stockbroker model and move even more aggressively into the arena of registered investment advisors ("RIAs") The recent push by large broker dealers once known as wirehouses to grow their advisor business has come with the imposition of new sales requirements.  Although the employer firms assert that such modifications are a a legitimate business strategy, in fact, these revisions are discriminatory when imposed upon an aging salesforce. 

In June 2019, Merrill Lynch Wealth Management President Andy Sieg boasted that his carrot-and-stick regimen to motivate the firm's 14,700 advisers to grow their practices is "humming"  because it requires the average Merrill Wealth broker to sign six new household per year with accounts over $250,000 to qualify for an extra 100-basis-point payout on revenue produced, up from a five-account target in 2018. Moreover, to avoid a 100-basis-point cut, they must bring in a minimum of four new accounts, up from three last year. Seig's remarks raised speculation that he will raise the bar on the "flexible grid" payouts brokers receive for hitting or missing new-account and new-asset targets, as he did in 2019's compensation plan

What Seig boasts is motivation, is seen by many of his older advisors as a thinly veiled attempt to force them out of the firm. These older producers feel that Seig's approach is little more than age discrimination, which has a "disparate impact" upon those age 50 and older. Disparate impact is often referred to as unintentional discrimination, and often occurs when policies or practices that appear to be neutral on their face result in a disproportionate impact on a protected group such as on the basis of age, gender, or race.  The policies Merrill and other former wirehouses now forcefully seek to enact will have the net effect of phasing out a significant number of age 50-plus advisors who cannot reasonably be expected to compete with the practice-growth requirements of their younger colleagues. Firms like Merrill focus on the perceived beneficial impact that their so-called motivational policies have on their firms' "bottom line;" however, not of concern to such employers is that those same policies may unintentionally have a discriminatory impact and violate both federal law and numerous state anti-discrimination statutes.

Financial Advisors over 50 years of age are in a protected group.

Demographic studies conducted by Ernst & Young have concluded that at the present time, the average financial advisor is 51, a number that has risen steadily each year.  In other words, the average advisor is a member of a protected class, which should be noted industry wide.

It is also common knowledge that as an advisor's practice rolls through the years, many of his or her clients change their investment goals from growth to capital preservation thereby lowering the advisor's production (e.g., less active trading in customer accounts, a steady conversion to fee-based rather than commission-based compensation to the advisor). All of this causes the advisor's production to either remain constant or shrink. Moreover, many clients of the 50+ advisor may relocate or pass away. In such instances, family members such as adult children who are not familiar with the advisor their deceased parent used may choose alternatives to manage their money elsewhere. Such a circumstance disproportionately and negatively impacts older advisors, which firms should be aware of prior to enacting the types of policies now being imposed by Merrill Lynch and others..  

Policies such as those being imposed by Merrill Lynch may indeed sound the death-knell for the careers of numerous advisors who are already combating the impact of a changing business. While enriching the broker-dealer, the already unequal bargaining power of firms and their advisors is being further leveraged to the advisor's obvious detriment.  Firms such as Merrill that use an employment model should be redoubling their efforts to protect their over-50 employees, rather than expose and exploit their vulnerabilities.