Merrill Lynch's John Thiel leads charge toward goals-based planning

"Simple: Conquering the Crisis of Complexity" has made it to the top of Merrill Lynch Wealth Management head John Thiel's favorite book list, and it's easy to see why. As the man in charge of keeping Bank of America's broker-dealer unit profitable, he believes the brokerage industry is undergoing a fundamental shift toward keeping things simple. The book, by Alan Siegel and Irene Etzkorn (Twelve, 2013), serves to inspire Mr. Thiel as Merrill's leadership team invests $100 million in the new Merrill Lynch One technology platform and pushes Merrill's 14,000-plus advisers to more fully embrace goals-based wealth management. The move toward simplicity, which coincides with Merrill Lynch's 100th year in operation, comes as the firm continues to recover from the financial crisis of 2008 — when the Thundering Herd's world got really complicated. Billions of dollars in losses at the time forced the brokerage behemoth's acquisition by Bank of America as frustrated brokers watched the fiduciary debate unfold, questioning whether a single standard should or even could be applied to both commission-based and fee-based advisers. After a net loss of 2,000 financial advisers over the past five years, Merrill is reshaping itself, according to Mr. Thiel, 52, who said that technology is a big driver behind the change. Merrill One, introduced last fall, merges five old platforms and helps advisers gauge performance tied to specific client goals such as retirement and college savings, he said. But even more important, the leadership team is committed to a five-year strategic plan that is shifting Merrill's primary focus to goals-based wealth management, which includes better client-adviser interactions, simpler language, investment personality assessments based on the science of behavioral finance, and the rewarding of teams that fully embrace the concept of financial planning. Clients who got burned after 2008 want transparency and honest talk about their finances, Mr. Thiel said. The former Dale Carnegie Training teacher sees clients' unhappiness as a chance to make things right. “We're going to make sure that we get the right outcome for clients but do it in a way that's in plain language, that people can understand, so we once again don't make the mistake of leading with complexity when our clients are looking for simplicity,” said Mr. Thiel, who reports to David Darnell, BofA's co-chief operating officer.

GOALS VS. PERFORMANCE

Mr. Thiel tells the story of meeting a retired business consultant and his wife two years ago when the couple came to New York for a client review. What struck him was the couple's desire to talk about their personal financial goals rather than their portfolio's performance against the S&P 500 benchmark. The husband was teaching a university course in math and capable of understanding the math behind portfolio construction, Mr. Thiel said. But he and his wife were more interested in talking about how to responsibly pass on wealth to their grown children. “We talked about their family. He wanted to be comfortable that we had the rigor, but he didn't really want to hear it,” Mr. Thiel said. “He was more worried about the ride home, and told us he was concerned that his wife would say, "I can't believe you made me come to New York and listen to that crap,'” Mr. Thiel said. Merrill One's rollout began in the fourth quarter on a region-by-region basis. So far, 8% of advisers have access to it, and the five legacy platforms will be shut down next year. Merrill plans to spend $40 million on goals-based training. Until now, advisers tracking client performance had to check asset allocations across disparate accounts on the five different “managed solutions” platforms. But Merrill One allows advisers go to a single platform to match portfolio performance to clients' specific goals, such as retirement or buying a second home. BofA's Global Wealth and Investment Management unit, which includes Merrill, was the only one of the bank's five units to report higher revenue in 2012, at the double-digit rate of 29%. More recently, Merrill reported that third-quarter 2013 revenue was up 7% from a year earlier. Merrill executives think that wealth management could be one of the strongest growth areas, despite low interest rates. “As you look at this business, it's market-leading,” said Andy Sieg, head of Global Wealth and Retirement Solutions. “Perhaps the best example of the availability of resources and the willingness to invest in the business has been the introduction of the Merrill Lynch One platform, which is essentially a new fee-based investment advisory program.” Merrill advisers use and will continue to use a combination of fees and commissions, said company spokeswoman Susan McCabe. As of December, 44% of advisers had half or more client assets under a fee-based relationship, she said. The initial announcement last summer about the merging of the five platforms didn't go well when it became apparent to advisers that fees could rise by as much as 50% for some of their clients. However, the new platform's single-fee structure offers greater transparency to clients, Mr. Thiel said. The client will decide between whether to pay a fee for discretionary advice in a vehicle such as a managed account or a fee for nondiscretionary advice where the client retains control of investment decisions, he said. Asked if some advisers are resisting the move to goals-based wealth management and its heavy emphasis on financial planning Mr. Thiel said that “there will be somebody out there who's not going to change.” This helps explain why Merrill is rewarding senior advisers who build teams that include a certified financial planner or chartered financial analyst. The firm's compensation plan also has been revised to reward teams with at least one member who has completed goals-based wealth management training. Advisers' use of goals-based planning isn't mandatory, though.

LATE TO THE PARTY?

Some critics contend that Merrill is late to the goals-based party. Merrill competitors Morgan Stanley, UBS AG and Wells Fargo & Co. have all introduced goals-based financial planning to advisers, said Sophie Schmitt, an analyst at financial research firm Aite Group. “Wells Fargo was a pioneer in that area,” said Ms. Schmitt, who worked from 2005 to 2009 as a sales process manager at Banc of America Investment Services Inc. before it was folded into Merrill. But what is new about Merrill's version of goals-based wealth management is the fact that it is actually reviewing client goals on a quarterly basis and showing how the portfolio is preparing individuals to reach specific personal financial goals, she said.

THERE ARE DOUBTERS

Tim Welsh, president of wealth management consultant Nexus Strategy, isn't so sure that Merrill will succeed in bringing the goals-based gospel to its advisers. “I started my career at Merrill Lynch Private Client [Group] and spent seven years there as a vice president of financial planning and managed communications, training advisers,” he said. “To me, this is quite humorous, because now, 20 years later, they're rolling it out again.” Goals-based planning is a helpful framework for any adviser to use, particularly for a firm such as Merrill that is better known for its investment platform, Mr. Welsh said. But he gave Merrill more credit for its “marketing geniuses,” who he said are doing little more than making something old sound new. “They're probably betting the firm on this, too, so it's got to work for them,” Mr. Welsh said. On the other hand, Mary Mullin, 55, a Merrill Lynch Wealth Management adviser based in Boston, is an early adopter and fan of goals-based planning, the personality questionnaire and the Merrill One platform. For example, when conducting a recent review with a husband and wife, Ms. Mullin asked them to fill out the questionnaire separately. She was surprised to find that the husband saw no need to leave money for his children, having already gifted to them. But the wife was worried about a son with substance abuse issues who might need support in the future. “So we got an attorney to do a trust saying if he gets a job, he gets money that matches his paycheck. That's a discussion we would never have had if they hadn't filled out the personality questionnaire,” Ms. Mullin said. Merrill Lynch Wealth Management's head, too, thinks that the shift to financial planning will work. “We can do this,” Mr. Thiel said. “We're spending a lot of money,” he said. “It's thought leadership, it's technology, and it's training.”