Bank of America CEO Blesses Wealth Management (In His Way)
Bank of America’s wealth management customers added $28 billion to their advisory accounts during the second quarter, leading the bank’s chief executive to say that he doesn’t expect Merrill Lynch to change course on its no-commission retirement account policy.
Asked during the bank’s quarterly earnings call on Tuesday whether a likely modification or repeal of the Department of Labor’s fiduciary rule would change Merrill’s rigorous policy, Chairman and Chief Executive Brian Moynihan embraced the model-portfolio managed account business that has flourished in part because of the decision to shutter commission accounts.
“I don’t think it will change our thinking,” the head of the second U.S. bank by assets said of the Trump Administration’s indications that it will modify the fiduciary rule.
“We have accommodated customers with larger balances in some of the areas…but the overall trend of driving toward the model products and…offsetting demands for lower and lower cost structure and fees the customer pays to get higher and higher services and capabilities from us is what’s driving this. The fiduciary rule is only a part of it, so I don’t expect to change our course.”
His remarks followed Bank of America’s report of fueled by falling expenses and rising net interest income as deposit rates stayed low while short-term rates rose.
The bank continues to hire advisors, private wealth managers and in-bank Merrill Edge advisors because its base of wealthy customers has been “underserved in the investment management area,” he said, without being asked about Merrill’s recent decision to halt recruiting of experienced advisors while reaching out to lower-paid neophytes. Merrill is planning to add an unusual mid-year incentive next month to spur its force of 14,811 brokers to attract new business in the wake of the hiring freeze.
Merrill’s broker force grew by 254 in the April-June quarter after a decline of 145 in this year’s first quarter. A spokesman declined to say how many of the new advisors are trainees and recent graduates of its training program as opposed to outside recruits. Average production among experienced advisors, which includes training program graduates, rose to $1.35 million annualized from $1.28 million in the first quarter, the bank said.
The Global Wealth & Investment Management division of Bank of America, which includes Merrill Lynch Wealth Management and 363 “private client advisors” at its U.S. Trust unit, reported a 14% jump in net income to $804 million from the second quarter of 2016 on the back of a 6% climb in net revenue to $4.7 billion.
“Strong AUM flows of $28 billion, reflecting solid client activity as well as a shift from brokerage and deposits to AUM” helped drive an 8% increase in total client balances, the bank said in its earnings report.
Prodded by a requirement to make two referrals to their commercial banking colleagues in 2017 or suffer a 100-basis-point payout penalty, Merrill brokers together with U.S. Trust bankers helped average loan-and-lease balances grow $2 billion to $9.6 billion during the quarter, driven by residential mortgages and structured CDs and loan products, the bank said.
Bank of America enjoyed healthy net interest margins during the quarter because it and competitors have not been competing to raise deposit rates in spite of Federal Reserve hikes. Demand for higher returns from wealth management clients, however, led Merrill in June to raise some deposit rates, bank officials said on the conference call.
On the other hand, about half of the money that wealth customers took out of checking accounts during the quarter moved to investments “based on our allocation models,” Moynihan said.
Merrill’s rigorous no-commission policy on retirement accounts appears to have driven some brokers to refer clients unwilling to pay advisory account fees to Merrill Edge, the no-frills discount brokerage that is part of Bank of America’s consumer banking unit.
Brokerage assets at Merrill Edge, which includes a new “robo” investing platform, grew by $27.4 billion during the quarter to $159.1 billion. The 21% jump over the previous year in flows to Edge came despite a 38-person decrease in the number of Edge brokers to 2,206 as of June 30.