Brokers await BofA’s next move on wealth management

“Merrill Lynch brokers get up every day and say a little prayer: “Let this be the day we get spun off from Bank of America.’” — A longtime Merrill Lynch financial adviser

Bank of America Merrill Lynch brokers might want to pray a little longer and a lot harder after last week’s sacking of Sallie Krawcheck, who headed BofA’s wealth management division.

To some analysts and observers, the move signals a renewed effort on the part of the nation’s largest bank to further integrate Merrill Lynch and get its 16,000 brokers to cross-sell more bank products, something that most have resisted up to now. (See full story on cross-selling.)

“Cross-selling has to be a focus at Bank of America,” said Alois Pirker, a senior analyst at Aite Group LLC. “If it isn’t, why would they combine the two firms to begin with?”

As part of the new management structure, Merrill brokers now fall under the purview of David Darnell, who was named co-chief operating officer in charge of all consumer business. He comes from the banking side of BofA.

Cross-selling should work both ways, with brokers not only selling bank products to clients but also getting leads from the bank to build their advisory practices, Mr. Pirker said.

“[BofA] has about 10% of deposits in the U.S. There’s a huge opportunity to pick advisory clients from the pool, and we haven’t seen much of that yet,” he said.

One Merrill adviser, who asked not to be identified, said that he has yet to receive any referrals from the bank that have led to new business for him.

“The only ones getting the legitimate leads are the bank brokers. There’s just not enough leads to affect me,” he said.

Although this adviser reserves judgment on the recent restructuring, he isn’t very optimistic.

“The downside of [Mr. Darnell] is that he’s a banker. If he plans on putting more pressure on us to sell banking products, people will leave,” the adviser said.

An even bigger concern among the advisers is compensation and whether the bank will try to move them onto a salary/bonus structure. The present system is based on fees and commissions, and is directly tied to the amount of business generated.

“New hires and Merrill Lynch brokers under $500K [in production] could be on salary and bonus pretty quickly,” said Tim White, managing partner of recruiting firm Kaye/ Bassman International Corp. “It would drive out some existing brokers from the firm.”

BofA spokeswoman Selena Morris said that no changes to adviser compensation or senior leadership of the brokerage are planned.

However, advisers in private banking at BofA, including those in the U.S. Trust division, already are paid according to a salary/bonus structure. And some think that it was Ms. Krawcheck who argued most strongly against moving Merrill advisers to that model.

With her out of the picture, it falls to John Thiel, head of U.S. brokerage operations, to fight for the advisers on this crucial issue.

“If they make that change, there are going to be problems,” said the adviser who complained about not getting leads from the bank.

Another adviser — who left because of difficulties he had living under BofA management — agrees.

“If I were still there, I’d probably see what happens in the next six to 12 months to determine if I would stay. But if they put me on salary and bonus, I’d be gone,” said the former adviser, who asked not to be identified.

At least one analyst reads the tea leaves differently and doubts that there will be a big push to integrate Merrill further into the bank.

Richard Bové, a bank analyst with Rochdale Securities LLC, thinks that the management shuffle signals a shift at the bank away from domestic consumer business and toward international commercial business.

“I think they’ll shut 600 bank branches and jettison 30,000 people,” he said.

Mr. Bové also thinks that the bank will keep Merrill and moderate pressure on Merrill advisers to sell banking products.

“They’ll weaken the thrust on cross-selling because they don’t want the consumer loans,” he said.

BofA chief executive Brian Moynihan is expected to provide details on his plan to cut costs and reorganize the sprawling company at an analyst meeting in New York today. The plan is likely to involve massive job cuts and plans for asset sales that will increase the bank’s capital base.

At least one big BofA shareholder, however, wouldn’t mind seeing a spinoff.

“I think Merrill is worth as much as the whole bank is trading for now. It’s the crème de la crème of the brokerage industry,” said Buzzy Geduld, who sold his Nasdaq market-making firm, Herzog Heine Geduld Inc., to Merrill Lynch in 2000 and now owns more than 2.5 million BofA shares.

On the other hand, “if I were running the bank, Merrill Lynch is the last thing I would want to sell,” he said.

Email Andrew Osterland at [email protected]

Related Topics: Bank Of America Corp., Banking, ING Group, Merrill Lynch