Merrill FAs Marched Steadily to Bank’s Drumbeat Last Quarter
Brokers at Merrill Lynch generated billions of dollars of mortgages in the fourth quarter of 2016 but produced lower overall revenue than a year earlier as commission income fell.
Revenue at Merrill Lynch Wealth Management dipped 2.5% to $3.6 billion despite a slight increase in net interest income from loans and other bank products that parent Bank of America Corp. has been promoting through its retail brokers, the bank said on Friday.
Merrill brokers and their private banking counterparts at U.S. Trust still helped the bank to eke out a 2% jump in fourth-quarter profit to $634 million at its Global Wealth and Investment Management division as a result of lower compensation and other costs.
Expenses fell 4%, or $138 million, from the previous year due in part to expiration of broker retention bonuses that have fully amortized as well as lower operating and support costs, the bank said. Litigation costs at the retail brokerage rose, however, despite lower legal expenses at other parts of the banking giant.
“The business continues to undergo meaningful changes as firms and clients adapt to new fiduciary rules and other market dynamics,” Bank of America Chief Financial Officer Paul D’Onofrio said on an earnings conference call.
Merrill, whose brokerage force grew by 76 during the fourth quarter to 14,629 financial advisors as a result of training program graduates and “competitive recruiting,” banned the sale of mutual funds in individual retirement accounts in November to comply with the level-fee guidelines of the impending Department of Labor fiduciary rule.
As of April 10, when the so-called conflict-of-interest rule is scheduled to take effect, it is prohibiting brokers from selling any commission-based retirement accounts, and has been urging brokers to shift clients into fee-based “advisory” accounts.
Bank of America touted as a highlight of the fourth quarter new advisory account assets of $12.2 billion at Merrill and $18.9 billion throughout its wealth division, almost triple the $6.7 billion of such “long-term AUM flows”at the division in the year-earlier fourth quarter. A Merrill spokesman declined to comment on how much of the shift was influenced by the decision to cut off commission-based retirement accounts.
Merrill brokers and U.S. Trust’s 352 private client advisors marched to their parent’s orders during the quarter by stepping up bank product sales. Average loans and leases during the quarter reached $146 billion, up 6.5% from a year earlier, with home mortgages representing almost half of the total.
Under Merrill Lynch’s 2017 compensation plan, advisors must make at least two client referrals to another part of the bank to avoid a payout penalty. In 2016, the quota was one referral. Such referrals do not have to result in a business transaction.
Merrill Lynch advisors generated more than 80% of the wealth division’s revenue.
Total brokerage and noninterest income for the division fell 2.3% to $4.38 billion from $4.48 billion one year earlier. Asset management fees of $2.1 billion were up 1% from the end of the third quarter and 2% from the fourth quarter of 2015.