Merrill Posts Record Q1 Profit on Big Jump in New Households
(Corrects percentage growth rates in third paragraph.)
Merrill Lynch Wealth Management President Andy Sieg’s concerted effort to spur account growth is bearing fruit, as the firm had record first quarter profit of $800 million on record pretax margin of 26%, its parent company Bank of America said on Tuesday.
The positive numbers came in spite of a 1% dip in revenue to $4 billion, which the bank attributed to lower average market valuations that were partially offset by higher net interest income.
Merrill’s almost 14,800 advisors generated 17,625 new household “relationships” in the quarter, up 41% from the first quarter of 2018, Bank of America reported in an earnings supplement. The rate of net new account growth was seven times greater than two years ago when Sieg instituted a compensation plan for 2018 that rewards brokers for growth and deducts payout percentage points for shrinkage. The plan, updated for 2019 with higher quotas, remains in effect.
Experienced advisors are on track for six new relationships for the year, the company said.
Bank of America’s Global Wealth and Investment Management division, which includes Merrill and the Private Bank that was formerly known as U.S. Trust, reported first-quarter profit of $1.05 billion, up 13.7% from $922 million in the year-earlier quarter.
“GWIM results were impressive, particularly given the revenue impact of the market decline at the end of December,” Bank of America chief financial officer Paul Donofrio said on the company’s earnings call with analysts, noting that both fees and commissions rose. “Relative to 2018, the business continued to gain momentum growing net new households, which not only added to solid AUM flows but also drove another strong quarter of brokerage flows.”
The results came as Merrill’s brokerage count ticked down about 1% to 14,761 from 14,829 in the first quarter last year and from 14,796 at the end of the fourth quarter of 2018.
Sieg almost two years ago trimmed hiring budgets for experienced brokers, and the bank said in a news release that Merrill is focusing on “bringing the highest quality candidates into our training programs and ensuring they have the foundation needed for a successful career.” Merrill earlier this month said that it plans to embed about 300 advisors from Bank of America’s no-frills Merrill Edge unit for mostly self-directed investors into Merrill branches.
Despite its hiring pullback, a company official said the retreat has been relatively painless because the attrition rate of experienced advisors remains at a relatively low at 3%. Merrill’s rivals also have been in a longterm recruiting retreat, the official said.
Merrill has around 3,500 trainees in its financial advisor development program, Sieg said at a recent presentation.
The wealth division, along with other Bank of America units, recorded revenue growth that exceeded expenses. Merrill Wealth’s resultant pretax margin of 26%, and the division’s 29%, reflected in part the full amortization of goodwill from Bank of America’s purchase of Merrill Lynch a decade ago. The rolloff of $75 million of goodwill in the quarter, together with lower FDIC payments, contributed to an expense benefit of $115 million in the division, Merrill officials said. Bank of America has targeted a 30% pretax margin for the wealth division.
Client flows of assets into Merrill Wealth fell 44% year-over-year to $13.5 billion, but reversed the net outflows of $6.2 billion recorded in the fourth quarter last year. Total “client balances” at Merrill were $2.384 trillion, up from $2.285 trillion a year ago.
The declines in net new money in the first quarter reflected trends at competitors, including Charles Schwab & Co.’s Advisor Services. Net new assets from registered investment advisory firms that custody client assets with Schwab were down 30% year-over-year to $22.5 billion, the company said in reporting its first quarter results on Monday.
Merrill advisors also are responding to Bank of America’s push to sell loans and deposits to their investor customers. Sixty-two percent of advisors have sold banking products to their customers in the past year, the company said.
Merrill advisors also made over 41,000 referrals to other parts of the company, an increase of 9% from the prior year, the company said. One fourth of those led to new business, according to a company official.
Bank of America shares were trading down almost 2.5% mid-morning as the company beat expectations but said it expects interest growth to slow.
-Jed Horowitz contributed to this story.