Merrill Lynch ends 2013 on a high note

Fee-based business and strong markets drive up results for BofA's wirehouse

Jan 15, 2014 @ 11:47 am

By Mason Braswell

A strong fourth quarter capped off a big year at Merrill Lynch as Bank of America's brokerage business reaped the rewards of a rising stock market and some big investments in financial planning.

The Global Wealth and Investment Management division, which includes Merrill Lynch and U.S. Trust, brought in almost $4.5 billion in revenue and record profit of $777 million in the quarter, a 15% and 26% increase year-over-year, respectively. For the year, revenue of $17.8 billion was up 7% from 2012.

The results speak to the success of several financial planning and cross-selling initiatives at the firm, said Alois Pirker of the consulting firm Aite Group.

“The firm's turning in some nice full-year results, as well as quarterly results,” said Mr. Pirker, a research director in Aite Group's wealth management consulting group. “Overall, Merrill has made some very good decisions in the last 12 or 18 months and has some good traction.”

One of the strongest areas of growth in the global wealth unit was in fee-based business. Managed-account assets across the global wealth unit peaked at $821 billion in the fourth quarter, up 15% on a year-over-year basis. Inflows of long-term assets under management doubled from 2012 levels as the firm brought in more than $10 billion on average each quarter and a total of $48 billion in net new flows to managed accounts for the year.

Total client balances, which include assets held in money market accounts and checking accounts at the bank, reached $2.34 trillion.

Merrill Lynch spent the last quarter rolling out its new managed-account platform, Merrill One, to around 8% of its approximately 14,000 advisers. That capitalized on several initiatives that the firm rolled out throughout the year, including its goals-based strategy and optimum practice model, which encourages advisers to join teams with certified financial planners. Merrill is spending $100 million on Merrill One.

The efforts mirrored those made by competitor firms, including Wells Fargo & Co., which Tuesday announced its fee-based assets had jumped 23% year-over year.

“It is certainly a sign of the times, as well that we see the industry moving toward fee-based business,” Mr. Pirker said. “But at the same time we see programs being put in place like Merrill One that are facilitating that shift.”

The increase in fee-based assets was a boon for revenue as well. Asset management fees for the quarter were $1.8 billion, up 15% from the year-earlier quarter. Average production per financial adviser reached $1.04 million in the fourth quarter, up from $1 million in the third quarter.

“That shows they have solid producers and what the advisers are doing is providing more revenue,” Mr. Pirker said.

A lot of the new business came from referrals to and from the bank, the firm said. Loan balances were $119 billion at the end of the year, up 8.4% year-over-year, driven by growth in residential mortgage balances.

The firm pushed ahead despite a decline of around 1,000 advisers in 2013 at Merrill Lynch. Head count fell to 13,771 advisers at the end of the fourth quarter from 14,820 at the end of 2012. A spokeswoman for the firm, Susan McCabe, said that most of the losses were due to departing advisers in the lower production brackets and underperforming trainees.

“It hasn't hurt them, but I'm sure they would like to see the number slow down,” Mr. Pirker said.

The firm also saw strong growth at U.S. Trust, its private banking business for the ultrawealthy. Revenue in the division was $762 million, up 10.5% from the year-earlier quarter and head count rose 23% over the year to 280 private-client advisers.

“There's more to expect from them going forward as some of the strategies come to fruition, and I think we're going to see more improvement,” Mr. Pirker said. “But these are some solid results.”

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