Head count falls but fee revenue boosts Merrill Lynch in 1Q

Asset management fees hit a record $1.5 billion, up 21% from the first quarter last year; assets on Merrill One surge

Apr 16, 2014 @ 12:23 pm

By Mason Braswell

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(Bloomberg News)

Bank of America Merrill Lynch reported record revenue and double-digit increases in fee-based revenue for the first quarter as the firm says that it is already seeing the benefits of the Merrill One platform it began rolling out last September.

First-quarter revenue for the bank's global wealth unit, which includes Merrill Lynch and U.S. Trust, reached a record $4.55 billion, up 3% from the first quarter of last year. Asset management fees accounted for $1.9 billion of that revenue, up about 18% from a year ago. Net income of $729 million was up only slightly as the firm said it had incurred higher compensation expenses tied to the higher revenue and continued incur charges on technology investments.

Revenue increases came in spite of a continued decline in head count as Merrill Lynch posted a net loss of 47 advisers in the quarter and 749 for the 12-month period ended March 31. The firm had 13,725 brokers, compared with 14,474 a year ago.

Merrill has said the declines are mostly due to attrition of lower-performing advisers, and average revenue per adviser continues to climb, hitting $1,056,000, up from $1,039,000 last quarter.

(More: Merrill Lynch's Thiel: Fee transparency key to restoring trust)

The increased productivity shows the firm is seeing returns on its campaign to expand its goals-based planning business and the $100 million it invested last year in its new Merrill Lynch One platform, which is designed to aggregate accounts and make it easier for advisers to provide more financial planning and banking products for clients.

Fee-based business made up about a third of total revenue at Merrill Lynch in the first quarter, according to Susan McCabe, a spokeswoman for the firm. Brokerage revenue and net interest income from deposits and the credit book each accounted for another third of total revenue.

Forty-five percent of advisers had 50% or more of client assets under a fee-based relationship, according to the firm. That was up from 44% in the fourth quarter.

The firm also reported that around a third of the advisers now had access to Merrill One, which unifies five legacy platforms and fee schedules. Assets on the platform surged nearly 10 times in the quarter to $32 billion, from $3.5 billion as of the end of last year.

Ms. McCabe said Merrill One helped drive up total asset in fee-based accounts as advisers were able to accrue net new assets that had been held outside the firm when clients were transitioned onto the platform.

There is no automatic fee for clients who switch to the Merrill One platform and clients can negotiate new pricing once the accounts are aggregated.

Ms. McCabe said the rise in fee revenue was primarily driven by asset growth rather than fee hikes for clients moving over. Overall, client assets reached nearly $29 billion quarter-over-quarter, thanks to a roughly $16 billion boost from the markets and about $12 billion in new inflows.

As part of that push toward goals-based planning, Merrill Lynch is continuing to expand the banking and lending services it provides to wealth management clients. The number of referrals between the wealth division and Bank of America increased 30% from the first quarter of last year, Ms. McCabe said.

Loan balances in the first quarter of $120 billion were up more than 10% year-over-year.

That focus on planning mirrors efforts by other wirehouses. Around 80% of the $3.5 billion in first-quarter revenue at Wells Fargo Advisors came from fees, Wells Fargo & Co.'s chief financial officer Timothy J. Sloan said on a conference call last week.

(Don't miss: Wells Fargo eyes acquisitions as profits rise)

In recent years, brokerage firms have been focused on boosting fee revenues, which can provide more stable income even during market turmoil.

U.S. Trust, which focuses on the ultrahigh-net-worth client segment, also posted strong growth. The unit accounted for $768 million in revenue, of which $399 million came from fees, the firm said.

U.S. Trust has around 282 private-client advisers, an increase of 10 from the year-ago quarter.

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