Merrill Doesn’t Hesitate to Ax Big Producers, Sending Message
Tougher approach seen largely as response to increased regulatory scrutiny
Merrill Lynch is shaking up the ranks of its 14,000 brokers with what appears to be a zero-tolerance message about breaking key company rules.
Merrill Lynch is shaking up the ranks of its 14,000 brokers with what appears to be a zero-tolerance message about breaking key company rules. The new, tougher approach is seen largely as a response to increased scrutiny from regulators and heightened oversight by the brokerage itself.
The message was delivered in dramatic fashion: In September and again last month, the Bank of America Corp.-owned brokerage fired longtime financial advisers handling very large and lucrative accounts. According to the firm, they had violated its policies for dealing with clients and handling transactions. In both cases, Merrill surprised the advisers—and many of their colleagues—by opting for immediate termination over a less severe sanction that would have allowed them to remain on the job.
In the more recent case, Tom Buck, an Indiana-based adviser who oversaw $1.3 billion in assets, lost his job in early March. A 33-year veteran of the firm, Mr. Buck was considered a model for success at Merrill by people who had worked with him, other advisers have said.
But when the 61-year-old adviser showed up to work March 4 to attend what he thought would be a routine meeting with his managers, he was instead fired and escorted from the building before the day’s end, Mr. Buck said in an interview.
His daughter, Ann Buck, a cheerleader for the Indianapolis Colts as well as an adviser who worked alongside her father, voluntarily resigned, according to Mr. Buck’s attorney, Brian Hamburger.
In a termination notice posted on Mr. Buck’s so-called U5 filing and viewed by The Wall Street Journal, Merrill said it dismissed him for “conduct including failing to discuss service level and pricing alternatives with a customer, providing inaccurate information to firm management during account reviews regarding this issue, mismarking bond cross-trade order tickets as unsolicited and providing information to a client during an active account review that did not correspond to the firm’s records.” A U5 typically explains a broker’s departure or dismissal.
All of that, Merrill said in the filing, resulted in “management’s loss of confidence.” The firm began its review of Mr. Buck a day before the dismissal, according to the filing.
Mr. Buck, a perennial on the closely followed Barron’s Top Adviser rankings, taking the No. 1 spot in his home state of Indiana every year since 2010, said he doesn’t plan on disputing the language. He said in the interview that he wants “to go forward and take care of his clients” now.
He described the firing as a “kick in the gut,” and said the issues raised by Merrill weren’t brought to his attention before the day he was fired. He says he is now evaluating a couple of options and plans to resume his practice “soon.”
Merrill had no comment on Mr. Buck’s firing.
In the past, brokerages leaned toward giving second chances to their so-called top producers, perhaps putting a letter of reprimand in their file, ordering that they submit to closer supervision or a suspension, depending on the alleged offense. The new, tougher approach is seen largely as a response to closer regulatory scrutiny of brokerages.
“Gone are the old days where someone who was a big producer or a significant force could act with impunity,” said Robert Plaze, a former deputy director of the Securities and Exchange Commission’s Division of Investment Management who is now an attorney at Stroock & Stroock & Lavan LLP. “If an adviser is breaking policies, even if it doesn’t violate the law, it opens up the adviser to an enforcement action.”
But it also gives the firms a big advantage in terms of winning over the fired advisers’ clients, industry recruiters point out.
“Merrill Lynch has been in contact with my clients, reassigning them to other advisers and using this past month to their best advantage,” said Mr. Buck.
In September, Merrill terminated advisers Stephen Brown and James Goetz, based in Rochester, N.Y., who had 40 years of combined service at the brokerage and $2.5 billion in client assets under management. They were dismissed for what the firm says was “conduct related to not disclosing private securities transactions, including transactions alongside clients,” according to their BrokerCheck, Finra’s database on brokers and financial advisers.
Messrs. Brown and Goetz dispute the termination and Merrill’s reasoning for it, according to their attorney, Thomas Lewis. His clients are in arbitration with the firm, which wants Mr. Brown to repay a portion of a retention bonus he received. The circumstances of the firing are being aired in those closed hearings, Mr. Lewis said.
Mr. Lewis said Merrill “rushed to judgment” after questions arose around Mr. Brown’s investments in local private companies. Several of his clients, who are ultrawealthy and were close friends of Mr. Brown, were also investors in some of these companies.
“The penalty did not fit the allegations,” said Mr. Lewis, adding that both his clients claim the behavior was approved by Merrill.
Merrill also had no comment on Messrs. Brown and Goetz’s firings.
Like Mr. Buck, Merrill reassigned their clients, while the two fired advisers were unable to find work until the brokerage formally posted its reasons for the termination, Mr. Lewis said.
It isn’t clear why Merrill opted for the harsher penalties in either instance. A spokesman for the firm declined to comment for this article.
However, current and former Merrill employees say the company effectively sent a message to its employees: Shape up or else.
A Merrill branch manager based on the East Coast said there is a “zero tolerance” atmosphere for any type of risk at the firm right now and that other, less notable firings have taken place the last couple of years that may have been dealt with less harshly several years earlier. It has caused him and others to look over their shoulders more to avoid any run-ins with compliance personnel, the manager said.
Securities attorneys said that attitude is taking a greater hold in the industry. Even small violations, such as poor record keeping or email retention, are drawing stricter penalties, attorneys say.
“A firm might’ve addressed a relatively minor infraction with an internal review or a censure maybe,” said Rob Skinner, an attorney with Ropes & Gray, while speaking broadly about the industry. “With regulators bearing down increasingly on relatively minor sanctions, it’s an incentive for brokerages to do some shortsighted things because the negative impact of an enforcement preceding is potentially huge.”