Will the “Thundering Herd” Thunder Out the Door?

caitlin SRI/ESG News

Hat tip to Barry Ritholtz
November 9th, 2010, 9:00AM

Back in October, a friend at Merrill told me about an arbitration award that could rock Bank of America. It was circulating via email from desk to desk, and was causing some consternation amongst the troops.

It seemed that two former Merrill Lynch brokers had bolted for Morgan Stanley after the Bank of America acquisition of MER. They argued — quite successfully — that their deferred compensation and stock awards had vested due to the change in control of Merrill Lynch. B of A begged to differ, but an arbitrator sided with the brokers. He awarded them $1.167 million in deferred comp and stock.

Here’s where things get a little interesting:

“Bank of America’s purchase of Merrill Lynch could be the legal catalyst some advisors have been seeking that would allow them to depart the brokerage and take their deferred-compensation retention bonuses with them, lawyers are prepared to argue. So reports Dow Jones Newswires.

Retention contracts generally include clauses that require advisors to put in several years before they get vesting rights to their bonuses. However, vesting terms for several Merrill Lynch deferred-compensation programs state advisors can get their hands on the money if they leave with “good reason.”

Was Bank of America’s acquisition of Merrill Lynch that “good reason?” The lawyer who won this arbitration has another case scheduled to go to trial in April, with more slated for autumn and even into the spring of 2012. It takes anywhere from about 12 to 18 months for a complaint to wend its way through FINRA to a final hearing.

Deferred compensation is a big deal for brokers at Merrill — especially seeing how decades of ESOP stock gains had imploded in the 2008 crisis. Since the BofA acquisition was announced in September 2008, about 3,000 advisors have left Merrill.

Of course, B of A could always pony up a little more Do-re-mi to keep the top performing advisors — I figure $500k would do it, times the remaining top 4000 or so brokers over a 5 year period. What is $2B broken up over 5 years? A mere $400 million per year — a rounding error!

If B of A decides against ponying up, those brokers with $50M in AUM who are interested in departing for greener pastures should give me a call or email . . .

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Sources:
Former Merrill Lynch Brokers Win $1.167 Million Arbitration Award – Merrill Lynch Change of Control Triggers Stock Vesting for Employees
Taaffe, Michael S.; Bressan, Michael D.
Sarasota, FL, 10.15.2010
http://www.slk-law.com/news/default.aspx?id=758

BROKER’S WORLD: Merrill Lynch Deferred Comp Rules Face Challenge
Annie Gasparro
Dow Jones Newswires, November 8, 2010
http://online.wsj.com/article/BT-CO-20101108-708368.html

Merrill Retention Bonuses Face Legal Scrutiny
Kathleen Laverty
Dow Jones Newswires, November 8, 2010

http://online.wsj.com/article/BT-CO-20101105-715832.html