Merrill posts record revenue on fee growth

Asset management fees were up almost 17% year-over-year; total client balances hit $2 trillion

Jul 16, 2014 @ 2:46 pm

By Mason Braswell

Revenue continued to climb at Bank of America's wealth management unit, which includes Merrill Lynch and U.S. Trust, but profits declined slightly as expenses rose in the second quarter.

The firm's global wealth and investment management division, which includes Merrill Lynch and U.S. Trust, pulled in $4.59 billion in revenue during the quarter, up from $4.49 billion in the year-ago quarter. Profit, however, fell to $724 million, down from $759 million in the second quarter last year, as the firm said compensation and expenses related to technology and marketing ate into margins.

Overall, the division's profit margin, which is the highest in the industry relative to its wirehouse competitors, slipped slightly to 25.1% from 25.6% in the first quarter.

Revenue growth was driven by the Merrill Lynch Wealth Management division, where the firm reported a 1.3% increase in profit from the year-earlier quarter thanks to higher fee revenue.

Merrill Lynch's asset management fees of $1.5 billion were up almost 17% from the prior year. Client balances — which include loan balances and deposits at Bank of America —crossed the $2 trillion mark. More advisers, approximately 46%, were serving a majority of their clients in a fee-based relationship, the firm said.

Some of that growth was driven by the firm's managed account platform, Merrill Lynch One, which the firm began rolling out last fall. Approximately $81 billion in assets have transferred over to Merrill Lynch One as of the end of the second quarter. That compares to $32 billion in assets on the platform in the first quarter.

Non-interest expenses rose to $3.45 billion for the quarter, however, up from $3.27 billion a year ago. Much of that was related to higher compensation expenses related to the higher revenue that advisers were generating, the firm's chief financial officer, Bruce Thompson, said on a conference call.

Mr. Thompson also pointed to higher litigation-related expenses, but did not elaborate on specific cases or costs.

Margins were also lower because of short-term expenses related to investing in the Merrill Lynch One training program, as well as new retirement planning software, Merrill Lynch Clear, which launched in the second quarter.

Mr. Thompson said he expected those costs to decline over time. Executives said after the first quarter that margins of up to 30% are attainable, but did not provide a time frame.

Merrill Lynch reported it had turned around a steady decline in headcount with the addition of 120 advisers in the quarter for a total of 13,845. Headcount had ticked down in previous quarters, falling below 14,000 in the first quarter of the year.

Part of that turnaround may have been a payoff from training programs as the firm reported it had graduated 106 trainees from the program in the quarter.

Productivity per adviser, however, which Merrill Lynch defines as the firm's revenue divided by the number of financial advisers, fell slightly in the quarter to $1.058 million from $1.06 million in the previous quarter.

U.S. Trust, the private wealth management unit that typically focuses on millionaire and ultra-high net worth clients, also posted record revenue of $783 million in the quarter. Asset management fees of $413 million were up 9% from the year-earlier quarter.

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