Sobering Merrill Data: Productivity, Net New Assets and Headcount Fall
(Corrects ninth paragraph to show Merrill’s advisor count grew, not fell, by almost 230 in the past year.)
Retail clients weren’t trading or adding money to their accounts at Merrill Lynch during the first quarter, leading to a 5.6% decline in advisor productivity, Bank of America said Thursday in its earnings report.
Tight expense control, highlighted by the demise of “stay bonuses” BofA had been paying since it bought Merrill Lynch in 2009, helped the bank’s wealth businesses produce a $740 million quarterly profit but executives did not sound thrilled about long-term trends.
“The reality of the wealth management business” is that it is not as profitable as it used to be, BofA Chairman and CEO Brian Moynihan said in a conference call with analysts.
He also offered no shout-outs to Merrill Wealth head John Thiel or to Keith Banks, head of the U.S. Trust private bank, as he had in quarterly calls last year. However, he lauded the growth of loans and deposits among wealth management clients, another sign to some wirehouse brokers that are viewed as mere appendages today to the parent banking machine.
For Merrill brokers, whose compensation is tied almost exclusively to revenue produced, the first-quarter numbers were grim.
Average annualized per-broker productivity was $983,000 compared with $1.04 million one year earlier. More money was withdrawn from “long-term” client accounts at Merrill and the smaller U.S. Trust than was deposited during the quarter, for a net decline of $599 million. Another net $3.8 billion was withdrawn from so-called liquidity client accounts where money is meant to be held for less than a year.
The declines in Merrill’s client balances yielded gains for their banker cousins. Average quarterly deposit balances at the bank of $16.9 billion from wealth management clients were 7% higher than a year earlier, some of which was shifted directly from brokerage accounts. Average loans and leases were up 9% to $11.7 billion.
Overall wealth management balances at the second biggest U.S. bank by assets were down 3% to $890.7 billion as of March 31, a consequence of lower market valuation as well as lower transactional activity, the bank said.
The antidote to the downturn is expense control, Moynihan said, and Merrill has been doing its part. Though wealth management remains by far the smallest of Bank of America’s four business divisions, its pretax profit margin is a towering 26%.
Broker headcount fell by 86 over the past three months to 14,413, but is up 1.6%, or 228 advisors,from March 31, 2015. At the lower-scale Merrill Edge consumer banking unit, meanwhile, FA headcount is up 14% over the past 12 months to 2,259, while U.S. Trust’s advisor headcount remained almost flat at 325. (Merrill Edge advisors are salaried, supplemented by bonuses.)
Merrill attributed some of the client asset and advisor losses to the bank’s decision to radically cut its service to investors outside the U.S., primarily in Europe and Asia, a decision that earlier this month triggered a class-action lawsuit along with broker departures.
A Merrill spokesman said the bank would not quantify how many advisors have left as a result of the international strategy change, which followed a three-year business review.
Overall, profit at Merrill Lynch Global Wealth Management and U.S. Trust jumped 13.5% in the first quarter to $740 million, despite a 2% decline in revenue to $4.4 billion. Noninterest expenses fell 6%, or $208 million, due to the expiration of the fully amortized broker retention awards and lower revenue-related pay.
The end of the stay-bonus program has not caused “noticeable attrition,” Moynihan said in the conference call.
He also said that the bank is focusing intensely on growing wealth management in some markets, a reference to creation of a new specialized U.S.-based International Financial Advisors unit looking to attract very wealthy clients in the Dominican Republic, Mexico, Panama and Peru.
The new fiduciary rule for retirement accounts that the U.S. Department of Labor published this week will not create “hugely substantial costs,” Moynihan said, noting that it affects less than 10% of assets in the wealth management businesses.
Paul Donofrio, the bank’s CFO, said the new Merrill One platform that consolidates more than five managed account programs and limits brokers’ discretion to discount fees, is a “great example” of Merrill’s fiduciary standard leadership.
“We’ve been outfront [in creating] a transparent single-fee schedule experience,” he said. “We are guessing that experience is really going to pay off in terms of this rule.”