Merrill Lynch Revenue Slips 10%, Asset and Account Growth Slows
Merrill Lynch’s wealth management revenue dropped 10% in the second quarter as low interest income and lower fees and commissions hampered results in the virus-afflicted second quarter, Bank of America reported on Thursday.
Quarterly revenue at the brokerage giant fell to $3.625 billion from $4.047 billion a year ago, reflecting the effects of rock-bottom interest rates and lower asset-based account fees affected by market declines, the company said.
The credit impact disguised the underlying health of the wealth businesses that have been rapidly adding new household accounts, according to bank executives.
“Lower rates and Covid-related credit costs impacted an otherwise solid quarter with good AUM flows and strong deposit and loan growth,” Chief Financial Officer Paul Donofrio said on a conference call with investors.
Merrill’s more than 14,000 brokers opened 6,000 net new client accounts in the quarter, down from 7,500 in this year’s first quarter and the high-water mark of 10,200 new accounts in last year’s second quarter.
Market volatility that has caused advisors to spend more time hand-holding clients and the disruptions of working remotely affected the decline as brokers have less time to devote to prospecting, a senior Merrill executive said. He nevertheless praised advisors’ ability to meet Merrill’s “responsible growth” targets, noting that last quarter’s new accounts surpassed the 5,700 that brokers on average had added in 2015, 2016 and 2017 before Merrill instituted a “growth grid” payout policy that penalizes stasis.
“It’s down year-over-year but overall a very strong performance,” said the executive, who spoke on condition of anonymity.
In deference to the pandemic lockdown, Merrill last month lowered the number of net new households brokers must generate annually to avoid a 100 basis-point payout reduction to three from four. The company is not considering additional changes, the executive said.
New assets that brokers added to fee-based advisory accounts declined by 32% to $3.6 billion in the second quarter from the year-earlier period. But total client balances in investment accounts, loans and deposits, grew 9.5% during the 2020 second quarter to $2.45 trillion from three months earlier due largely due to market gains that juiced fees.
Executives also lauded the success of cross-marketing efforts between Merrill and private bank advisors and BofA bankers, saying referrals are up 32% in the first half of the year. Merrill clients have opened 50,000 new “core” banking accounts at Bank of America this year, and 55% have checking and savings accounts with the second biggest U.S. bank by assets.
Merrill clients now hold $182 billion of BofA loans, up 10% from 12 months ago. Sweeps of cash from investment to bank accounts swelled a 13% rise in average deposits to $287 billion as Merrill clients became more cautious about markets last quarter.
Bank of America, which had 14,690 Merrill advisors as of June 30, 2019, no longer updates the number. Merrill retreated from recruiting long-tenured brokers from rivals more than two years ago. Attrition of experienced advisors at Merrill is at a “historically low’’ annualized level of 2.4%, the executive said.
BofA employs 17,888 wealth management representatives throughout the company, including more than 2,000 Merrill Edge call-center brokers who are paid primarily through salary rather than through the sales-based grid formula for traditional brokers.
The average Merrill advisor is on pace to produce $1.069 million of revenue this year, about flat with the six-month annualized rate of $1.082 million as of June 30, 2019. Morgan Stanley on Thursday said its 15,399 advisors are producing at an annualized rate of $1.214 million, up 8% from June 30, 2019.
Bank of America reported a 52% decline in second-quarter companywide net income to $3.53 billion, influenced by its reserving $5.1 billion for potential loan losses. Its shares were trading hands in early afternoon trading at $24.00, down 2.42% from Wednesday’s close.