The biggest bull on Wall Street is emerging from the bear market with a vengeance, but some think its rampage will be slowed by an aging client base.
Merrill Lynch & Co. Inc. has completed a third straight quarter during which it added financial advisers to its staff, putting it squarely on the path to reaching its hiring goals.
The New York-based wirehouse added 224 advisers during the first quarter for a total of 13,700.
That follows a net increase of 145 advisers in the fourth quarter and 75 advisers in the third quarter. Those increases came after a period of 11 straight quarters of declines. During that period, the number of financial advisers at Merrill Lynch declined 38% from 21,500.
Merrill had said at a Securities Industry Association conference on Feb. 26 in New York that its goal is to hire 650 advisers a year and a total of 2,000 during the next three years.
The firm also posted its third straight quarter of increased net new assets from its financial advisers, InvestmentNews learned from a confidential research report, which Merrill confirmed.
Net new assets - the amount gathered by financial advisers after subtracting asset appreciation and factoring in asset outflows - are the largely unpublished statistic analysts scrutinize most closely at broker-dealers.
Analysts value it for helping to divine who is winning the market share game among broker-dealers.
Merrill's net new assets from advisers were $6 billion in the first quarter and in last year's fourth quarter. In the third quarter, the firm had net new assets of $5 billion.
In the first two quarters of 2003, net new assets from advisers fell $5 billion and $1 billion, respectively.
Merrill's latest earnings report has increased confidence among Wall Street analysts that a real turnaround is under way at the bellwether brokerage firm.
"Merrill is out of its restructuring phase and firmly launching into `growth' mode," Ken Worthington, an analyst with CIBC World Markets Corp. in New York, wrote in a research note.
"As the retail market continues to rebound, we see [Merrill] as the market leader in retail brokerage," said Brad Hintz, an analyst with Sanford C. Bernstein & Co. LLC in New York.
But another analyst said that what may be most daunting for Merrill's competitors is the new means by which the firm is making its gains in net new assets and in broker head count.
"Merrill always said: `We trained the Street,"' said Stephen Winks, who once headed investment management consulting for Prudential Securities Inc. in New York.
"Now they're saying: `We're going to turn the tables. We're going to use the recruitment strategy,"' said the principal of SrConsultant.com in Richmond, Va.
Merrill spokeswoman Terez Hanhan said that headhunting talent is now part of a three-pronged strategy for recruitment that includes hiring fresh recruits and so-called second-career veterans.
"Even as the [adviser] force grew, annualized revenue per [adviser] increased by 18% year over year to $727,000, in part a reflection of the seasoned producers we have brought in" by an executive recruitment strategy, she said.
The firm's competitors previously enjoyed a long ride of making gains on the industry leader.
During the four-year period through 2002, Merrill lost 3.2% of private-client assets on an annualized basis. Over that same time period, assets grew 6.5% on an annualized basis at San Francisco-based Charles Schwab & Co. Inc. and 6.3% at Smith Barney Inc. in New York, according to research reports from New York-based Morgan Stanley.
Industry observers said Merrill's turnaround in adviser head count and net new assets shows that it can still exert its will.
"Merrill Lynch will give its competitors what they don't want," Mr. Winks said.
"If Merrill Lynch wants something, they're very, very fierce" in how they go after competitors' assets and advisers.
Jon D. Holtaway, a former financial services analyst who recently became a financial adviser with Xerxes Financial Group Inc. in Springfield, Va., nonetheless questions whether Merrill Lynch is showing some vulnerability. That is because $6 billion growth in net new assets is a fraction of 1% of the company's $1.4 trillion in client assets.
He said Merrill still faces a potential uphill battle because its average client is over 70 years old.
When those clients die, Merrill has the challenge of trying to bring on board their children, who may have set up accounts elsewhere.