Merrill Brokers Added More than 40,000 New Accounts in 2019
(Story updated with additional details throughout.)
Merrill Lynch brokers added almost 41,000 new household accounts in 2019, up 25% from 2018, reflecting the success of the firm’s “growth grid” program that ties broker payout percentages to meeting or missing new account and new-asset targets.
Net income for the wealth businesses fell $48 million, or 4%, to $1.03 billion in the fourth quarter from the year-earlier period. The bank attributed the drop primarily to lower interest rates and a one-time gain in the earlier quarter from sale of a “noncore asset.”
Revenue at Merrill Wealth fell 2.8% in the fourth quarter to $4.0 billion, and was down 2% to $4.9 billion for the entire division.
Much of the increase in client assets in the fourth quarter came from market appreciation, but the bank said that Merrill advisors and BofA private bankers added $8.1 billion of net new assets. Asset management fees were up 5%, and yearend client balances of $2.6 trillion rose 17% from 12 months earlier.
The average broker, excluding those in Merrill’s training programs, added 5.5 new households in 2019, with average account assets of $1.3 million, according to the company.
Under the growth grid, brokers were required to add four net new household accounts of $250,000 or higher, up from three in the 2018 plan, to avoid a payout cut of 100 basis points on revenue produced. The growth grid also required them to add six net new households to qualify for an additional 1% payout, up from five in 2018.
Seventy percent of Merrill Wealth brokers in 2019 either improved or maintained their payout rates for 2020 by meeting the growth grid targets, according to a senior Merrill executive. Merrill has not changed its growth or base grid payout rates for 2020, and continues to withhold payouts on the first 3% of monthly revenue produced by brokers.
Bank of America Chief Executive Brian Moynihan celebrated Merrill Lynch’s record pretax margin of 26.5% for all of 2019, which he said was reached in spite of high expenses in the retail brokerage business due to compensation and falling rates. “We’re not changing compensation,” he noted on a conference call after BofA reported an earnings per share gain that beat analysts’ consensus expectations for the fourth quarter.
Wealth management is the least efficient of Bank of America’s three principal business, with 71% of every dollar going toward expenses, primarily for compensation. The “efficiency ratios” of the bank’s investment banking, consumer banking and trading (global markets) divisions were 44%, 46% and 69%, respectively.
Moynihan said that Merrill Lynch Wealth President Andy Sieg should be able to drive even more efficiencies through more “process simplification” that includes consolidating offices and getting wealth customers to use more digital and online services. Although 72% of Merrill clients actively use Merrill or bank online and mobile platforms, its clients are the least digitally engaged of the company’s customers, Moynihan said.
Merrill hired 30 “digital specialists” in 2019 to help advisors get clients to leverage the technology.
The total number of financial advisors at Merrill Wealth and the bank’s Merrill Edge units fell to 17,458 as of Dec. 31, down by 60 from 12 months earlier. Merrill no longer breaks out how many of the brokers work within its wealth unit rather than at Edge, which operates primarily from bank branches and which pays salaries and bonuses rather than grid-based compensation. As of June 30, 2019, Merrill Wealth had almost 14,700 brokers.
As part of its efficiency program, Bank of America has moved about 300 Edge advisors into Merrill Wealth branches. They are working as one “interconnected” team under the Merrill brand, according to the senior Merrill Lynch executive.
Merrill said in a statement that 70% of its “experienced advisors,” excluding those in training programs, had the strongest production years of their Merrill careers in 2019. The average advisor generated $1.43 million of fees and commissions from clients based on fourth-quarter annualized numbers, up 5.5% from 12 months earlier.