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Quoted in the Wall Street Journal September 24, 2018

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Douglas Schulz, CRCP

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The authors have taken the rules and regulations of the brokerage industry and put them in laymen’s terms. -- Professor William C. Tyson, The Wharton School & The Law School of the University of Pennsylvania

The Book, Brokerage Fraud is a must read for all compliance professionals and brokerage firm's compliance and legal departments.

This book is a timely wake up call to the brokerage industry to clean up its ways. -- George D. Mullen, Vice President UBS PaineWebber

Tracy Stoneman and Douglas Schulz certainly know what Wall Street brokerage firms wish you didn't. -- Evan Cooper, Editor-in-Chief, On Wall Street, Co-Author

This book can save you thousands of dollars and loads of headaches! -- Jordan E. Goodman, author of Everyone's Money Book

Had "Brokerage Fraud" been available to my wife and I eight years ago, it may very well have saved us the fortune we lost to a mercenary industry that promotes itself as caring and responsible, when in fact it cares mostly for itself.

"Brokerage Fraud" is frank and friendly, organized, comprehensive, easy to digest -- and quite unique, too, because the distinguished authors tell all about an autonomous, all-powerful institution that routinely sheers the uninitiated."

". . . I am an attorney and an investor. Yet, I must say that each chapter of 'Brokerage Fraud' brought new information and insight that is invaluable . ."

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WALL STREET ARTICLE - from conflict of interest comments by, Douglas Schulz

Some Merrill Brokers Say Pay Plan Urges More Customer Debt

Financial advisers have complained that the pay structure pits them against their clients

Merrill Lynch’s head of Wealth Management said brokers are expected to serve clients’ best interests, even if an interaction could have a negative impact on pay.

Merrill Lynch’s head of Wealth Management said brokers are expected to serve clients’ best interests, even if an interaction could have a negative impact on pay. PHOTO: CHRIS RATCLIFFE/BLOOMBERG NEWS



Lisa Beilfuss

Nov. 20, 2018 5:30 a.m. ET

Some brokers at Merrill Lynch are pushing back against a compensation plan they claim rewards them for increasing debt their clients take on and in some cases can punish them for reducing it.

Some of the 15,000 financial advisers at Merrill have complained internally to management about a compensation structure they say urges more customer debt at a time when interest rates are rising, according to brokers and managers. Others have written over the past year to Andy Sieg, head of Merrill Lynch Wealth Management, saying the policy potentially pits them against their clients’ interests.

The skirmish is occurring as brokers digest pay policies that include what amounts to a broad pay reduction as well as changed targets for attracting new business and cross-selling certain products. Those who miss growth targets earn less than in the past; those who jump certain hurdles stand to get a bonus.

Edging HigherTotal consumer debt, Bank of America'sGlobal Wealth & Investment ManagementunitSource: Bank of AmericaNote: Bank of America GWIM includes Merrill Lynchand U.S. Trust


One of those targets focuses on growing clients’ net new assets and liabilities, including things like securities-backed loans and mortgages, by at least 2.5% annually.

While acknowledging some complaints from brokers, Mr. Sieg said the pay program has motivated many financial advisers and helped boost growth at Merrill. He said management considered risks for conflicts of interest and designed the plan so it doesn’t favor one product over another.

Mr. Sieg said brokers are expected to serve clients’ best interests, even if an interaction could have a negative impact on pay. “We trust our financial advisers to do the right thing,” he said, adding the firm has supervisory functions in place to monitor behavior.

This summer, about a third of Merrill brokers had pay taken back by the firm. Before 2018, there were no pay penalties connected to client liabilities.

Adding to tension within the Merrill ranks: Some brokers say they feel pressure to push Bank of America products, such as checking accounts, to wealthy investor clients. Merrill is the brokerage arm of Bank of America.

Advisers can make up lost compensation by acquiring new clients and doing more for existing clients. The catch, some brokers say, is that growing portfolios by pushing clients to take on debt can be easier than finding new assets.

Loans that are backed by a client’s investment portfolio are a particular favorite of brokerage firms, said Jeffrey Harte, brokerage analyst at Sandler O’Neill + Partners. “It’s taking money that’s already there and making more money on it, versus the much harder job of going out and growing assets,” he added.

Advisers say such loans, known at Merrill as Loan Management Accounts, can sometimes be useful. One example: a person who needs cash during an emergency and doesn’t want to suddenly sell investments to raise it. Instead, the person could borrow against the investment portfolio.

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Merrill isn’t alone in pushing such loans. Brokerages have amassed roughly $200 billion in securities-backed debt over the past decade, according to wealth-management consulting firm Mink Hollow Advisors.

And while Merrill’s compensation structure has changed, these debts held by clients have actually declined. Merrill clients in the third quarter had $37.4 billion in debt backed by their investments, the smallest amount since the start of 2015.

Still, some brokers claim the compensation program could lead them in some cases to favor a client maintaining debt if paying it down would reduce investment holdings as well as the loan balance.

Advisers keep a portion of the monthly fees the firm charges for debt products. Customers pay fees of around 1% of assets under management and up to 0.7% on securities-backed loan balances.

If a client wants to sell investments to pay down a loan, that shrinks the holdings that are the basis for the brokers’ compensation. It also counts twice against the target for net new asset and liability growth.

Some Merrill Lynch customers have complained about the lending push following the most recent changes, according to a person at the firm handling three such complaints.

Mr. Sieg said the firm closely tracks client complaints. “We have not seen any increase in complaint activity around lending products,” he said.

In 2017, Finra fined Merrill Lynch $7 million for inadequate supervision around LMAs. The firm settled without admitting or denying wrongdoing.

Write to Lisa Beilfuss at