Merrill Lynch Headcount Falls, But Revenue Rises on Advisory Growth
(Adds Charles Schwab’s first-quarter results in third paragraph. Corrects number of Merrill brokers to 14,484 from 14,548 and raises fourth-quarter broker loss to 145 in eighth paragraph, based on company’s recalculations. Adds data on Merrill-generated mortgage growth in last two paragraphs.)
Merrill Lynch’s 14,484 brokers helped Bank of America’s wealth management businesses report a 4% first-quarter profit rise to $800 million from $700 million a year earlier, the bank said on Tuesday.
Revenue in the businesses, which include Merrill Wealth and the bank’s U.S. Trust private bank and its 367 advisors, rose 3% to $4.6 billion while expenses were up 2%. That led to a record pretax margin in the unit of 27%.
Charles Schwab Corp., a competitor to Merrill that has been expanding into full-service advisory services, on Tuesday reported that its first-quarter revenue jumped 18% from a year earlier to $2.1 billion. Its first-quarter profit was up 37% to $564 million. Schwab in February lowered most of its stock and option trading commissions to $4.95 per trade from $8.95, helping to swell new account openings to a record 362,000 during the quarter.
Merrill’s revenue was driven by higher asset management fees, reflecting in part a shift of commission-based individual retirement accounts to managed relationships in light of the firm’s strict fiduciary rule policies. Revenue was also boosted by higher interest rates and loan growth that benefited Bank of America company-wide.
Advisory fees in the wealth businesses were up 7.9% in the quarter to almost $2.2 billion, reflecting in part a record $29.2 billion of “long-term” flows into advisory accounts.
Two-thirds of Merrill advisors have fee-based relationships with at least half of their customers, up from 36% five years ago, according to a Merrill spokesman. In a sign that fee accounts are generally more profitable and more consistent than commission-based accounts, the average Merrill broker produced $1 million of revenue during the quarter, up from $960,000 in the fourth quarter of 2016, the bank said.
Measured by “experienced advisors” who are not part of the company’s three-year training programs, productivity averaged $1.3 million per broker, up from $1.25 million in the previous three months.
While expenses in the wealth businesses grew 2% from the year-earlier quarter to $3.3 billion, they were down by $26 million from the fourth quarter due to lower support costs. Bonuses were up but total advisor count in the division was flat with a year ago, the bank said.
Merrill’s brokerage force fell by a net 145 advisors in the first three months of the year, the bank said. Merrill recently lost dozens of experienced advisors, some of whom expressed discontent with tighter control from the bank parent and the strictures on commission-based accounts, but ended the quarter with 72 more brokers than 12 months earlier. The company did not say how many of the new brokers are in its training program, nor how many trainees left during the quarter.
A Merrill spokesman attributed the quarterly decline “in large part to a combination of seasonally lower hiring during the quarter, and an expected increase in advisor retirements – nearly all of whom are part of our client transition program.”
Wells Fargo Advisors last week said its brokerage force fell by 225 in the first quarter in the wake of its consumer bank scandal.
As part of Merrill’s still-shifting policies on restricting commission-based retirement accounts, it is recommending that some clients move to Bank of America’s largely self-directed Merrill Edge discount brokerage unit. The bank boasted that Merrill Edge assets grew 21% from a year ago, with accounts up 11%.
Bank of America itself reported a nearly 40% jump in first-quarter profit on strong investment banking results and Fed hike-induced net interest income growth. In a sign of how important Merrill producers have become to its parent company, 34% of the average $193.6 billion of residential mortgages on the bank’s books in the first quarter were originated in its global wealth and investment management division, more than in its consumer banking division.
All average loans and leases of $148 billion in global wealth and investment management rose 7% to $148 billion in the first quarter. GWIM-generated deposits of $257 billion were down 1%, reflecting in part customers’ decisions to shift deposits into investments, bank executives said on the company’s earnings conference call on Tuesday morning.