Merrill Flaunts Customer and Asset Growth Despite Recruiting Halt
(Updates with Merrill’s decision to remain in the Protocol for Broker Recruiting in the tenth paragraph.)
Profit at Bank of America’s wealth and investment management division broke the $1 billion barrier for the first time last quarter, due in part to Merrill Lynch brokers’ and managers’ response to compensation incentives that reward household and new-asset growth, company executives said on Monday.
While far too early to declare “mission accomplished,” they pointed to a jump in new accounts and broker productivity, and to record-low attrition of just over 2% annualized, as a sign that the carrots and sticks added to Merrill’s 2018 compensation plan to reverse a moribund growth rate is bearing fruit. It requires brokers to increase customer assets by 2.5% or bring in at least three new wealthy households to maintain their 2017 payout levels.
“Total organic household acquisition for the quarter was the highest we’ve experienced…in at least five years,” BofA Chief Financial Officer Paul Donofrio said in a conference call with analysts after the bank company reported better-than-expected results across the board. “We also had our strongest start to the year in terms of total net new money since the [January 2009] merger [of BofA and Merrill].”
Merrill brokers on average brought in less than one one net new household a year in 2017, a worrisome growth rate exacerbated by the wealth management giant’s still-in-effect decision to back away from expensive hiring of veteran brokers with robust books of business.
In the first three months of 2018, gross household growth rose 60% from the year-earlier quarter, according to people familiar with the metric. And the bank said that productivity of the company’s 14,829 Merrill Lynch brokers was up almost 4.5% from the year-earlier period to $1.04 million per average adviser (and up 3.6% to $1.36 million for experienced brokers).
Client balances at Merrill Wealth climbed 5%, or $2.3 trillion from a year earlier on market increases and new money but were down 1% from last year’s fourth quarter primarily because of market declines.
Bank of America chief executive Brian Moynihan has said that he is focusing growth of the company’s consumer banking and wealth businesses among the mass affluent, an effort that Merrill has implemented by a new program to create a small-market, or community, unit to sell brokerage services and investments far from traditional wealthy communities. The new household growth in the first quarter was not concentrated in small markets, however, but across all strata of the wealth spectrum, the people familiar with the quarterly numbers said.
Merrill Lynch also has changed the metrics for evaluating its “field” managers, heavily weighting their bonuses to branch and complex-wide growth in clients, new-money flows and customer retention while de-emphasizing recruiting.
Results of the change were mixed during the first quarter. Total broker headcount was down a net 124 from the end of 2017, but was up almost 272—or 2%—from last year’s first quarter. (Wells Fargo said Friday that its broker count fell by a net 155 during the quarter.) People close to Merrill said the numbers reflect seasonally low hiring as interviews fall off during the winter holiday season as well as fewer offers for veteran brokers from Morgan Stanley and UBS, wirehouse competitors that have also trimmed recruiting budgets.
Unlike those competitors, Merrill remains in the Protocol for Broker Recruiting, a pact that makes it easier for brokers to leave for other firms in the agreement with customer-contact information. Merrill has no immediate plans to leave the Protocol, said the people familiar with its thinking, a strategy popular with brokers but that makes it vulnerable to losing some to smaller firms.
Merrill brokers added $24.2 billion from new and existing customers to fee-based accounts during the quarter, down 17% from the year-earlier period but up 3% from the fourth quarter of 2017. Although Merrill and other big firms have been encouraging customers to shift from traditional commission to fee-based accounts, commission-account balances grew for the first time in two years due to new money as well as market growth, Donofrio said.
Net income for the global wealth and investment management division, which also includes BofA’s smaller U.S. trust private banking business, grew 34% from a year ago to $1.03 billion and pretax margin jumped to 29% from 27%. Revenue at the wealth unit was up 5.7% to $4 billion while noninterest expenses fell 3.0% to $3.4 billion.
The number of financial advisors at Bank of America Consumer Bank’s Merrill Edge wealth unit for less affluent investors grew by 417 from a year ago to 2,538 and BofA executives nodded approvingly to the 18% growth in assets and deposits at the no-frills unit. “We think customers are noticing and giving us more of their investment dollars,” Donofrio said on the conference call.
Merrill brokers are incentivized to refer less affluent households to the Edge unit, and does not pay its brokers on accounts with less than $250,000 kept at Merrill Wealth.