Merrill Wealth Slowly Eases Out of Covid Slump
Bank of America issued a mixed third-quarter report card for Merrill Lynch Wealth Management on Tuesday, saying revenue fell by 7.5% from the 2019 period but inched up 3% from the second quarter when advisors and clients were coping with the initial constraints of the Covid-19 crisis.
Net income at the bank’s Global Wealth & Investment Management division, which includes more than 14,000 Merrill Wealth advisors and about 1,900 BofA Private Bank advisors, fell 32% from the year-earlier quarter to $749 million. The profit was up 20% from the second-quarter doldrums.
Cratering net interest income in the division caused by rock-bottom rates more than offset higher asset management fees in the wealth division. BofA CEO Brian Moynihan said on an earnings call that the wealth division is furthering its goal of generating more bank loans and deposits, in addition to traditional investment revenue.
Referrals between Merrill brokers and bankers rose 17% in the first three quarters from the same 2019 period. Average deposits from market-wary wealth clients grew 15% from a year ago during the quarter, and average loans jumped 9% to $186 billion, the bank said.
The wealth businesses produced 22% of Bank of America’s total quarterly revenue of $20.5 billion—the second highest of its four business divisions, after consumer banking—and 15% of its $4.9 billion of net income, the smallest division contribution.
Merrill Wealth and the Private Bank ended the quarter with record-high client balances of $3.1 trillion, a 6% jump from the year-earlier third quarter on higher market valuations and client flows, but efforts to attract new client money to fee-based managed accounts lagged.
“Net client flows” across the division fell 61% to $1.39 billion from the second quarter and were 75% lower than the $5.52 billion advisors attracted in last year’s third quarter.
“There has been some slowing in household acquisition activity,” a senior Merrill executive told reporters on Tuesday, but indicated no plans to rescind the carrot-and-stick compensation plan introduced three years ago to incentivize advisors to grow their books.
The “growth grid” adds, deducts or maintains payout percentage points on broker revenue grids based on net new households and new assets. (Plans to raise the new household bogey to four accounts this year from three to avoid a penalty were canceled in June to accommodate lock-in challenges of the Covid crisis.)
The compensation scheme remains “remarkably strong,” with advisors averaging almost four times the new household results they were achieving before introduction of the growth grid, the executive said.
Merrill advisors attracted about 17,000 net new households in the first three quarters of 2020, compared with 28,000 in the comparable 2019 period, according to a spokesperson.
The Merrill executive credited Private Wealth Management advisors—about 200 broker teams generally servicing clients with $10 million or more of assets—with having had particular success in attracting assets during the Covid-19 crisis. Average per-account assets of Private Wealth clients are $33 million, said the executive, who spoke on condition of anonymity.
Bank of America no longer breaks out the distribution of advisors among its core Merrill Wealth, Private Wealth Management and Merrill Edge units, but the executive said that 75% of Merrill’s traditional brokers are producing more revenue this year than last and over 60% “are having the best years of their careers.”
Merrill Wealth President Andy Sieg has eschewed hiring experienced brokers from competitors to replace retiring or departing advisors for the last three years, and last month introduced a new development program to train wealth management brokers from within Bank of America.
Merrill’s expenses during the third quarter rose 3% from the year-earlier period to $3.5 billion on “higher revenue-related incentives” for advisors and spending on new digital projects such as a Personal Wealth Analysis tool that generated more than 150,000 financial plans during the third quarter, the company said.