Merrill Reports Record Quarterly Profit on 2% Jump in Client Balances

October 16, 2019

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Profit at Bank of America’s global wealth and investment management sector jumped 8% in the third quarter to $1.1 billion from the year-earlier period, fueled by record-high client balances that grew 2.2% to $2.4 trillion at Merrill Lynch, the bank said Wednesday.

Brokers at Merrill Lynch Wealth generated $5.5 billion of net new money from customers during the quarter, contributing to fees and net interest income that produced record third-quarter revenue of $4.1 billion at Merrill. (Bank of America’s private bank, formerly known as U.S. Trust, provided $700 million, or 18%, of the division’s revenue.)

A senior Merrill executive said more than 60% of Merrill’s brokers are on track to have the best revenue years of their careers, crediting much of the success to the firm’s two-year-old growth grid that ties broker payout percentages to meeting or missing new account and new-asset targets.

Merrill raised its growth-grid targets in its 2019 compensation plan, but the executive reasserted his expectation that the targets will not change in the soon-to-be-announced 2020 program.

The average Merrill broker is on track to add 5.5 new household accounts this year—up from less than one three years ago and qualifying for a payout in excess of the firm’s core grid. The new accounts average about $1.4 million, in line with more seasoned accounts, the official said.

Brokers also have been responding to directives to sell more mortgages, customized loans and deposits to their investment customers. Loans and leases in the third quarter averaged $170 billion in the global wealth businesses, up 5% from a year earlier. The resulting interest income in the wealth division jumped 5.1% to $1.61 billion in the third quarter, representing 13% of net interest income at the second biggest U.S. bank by assets.

Merrill Lynch is continuing its multi-year freeze on hiring experienced brokers, relying for asset growth on less costly trainees and referrals from Bank of America consumer bank branches and its Merrill Edge discount unit to supplement brokers’ household account growth.

Merrill Wealth as of the third quarter stopped breaking out its number of experienced advisors, providing instead a count that includes trainees and “financial solutions advisors” who work at Merrill Edge (a part of BofA’s consumer bank) and, selectively, in Merrill Wealth branches.

As of June 30, Merrill Wealth’s core broker count had fallen over the previous 12 months by a net 130 to 14,690, and it lost several experienced large producers to Rockefeller Capital, First Republic Bank, and Morgan Stanley, among others, in recent months.

The Merrill executive said Wednesday that the advisor account “across our continuum of wealth management capabilities” rose by a net 149 in the third quarter and by 201 from a year earlier to 17,657 brokers.

The new headcount dynamics have helped lower expenses, although the official said that Merrill has plans to invest in significant enhancements to broker workstations.

Noninterest expense in the third quarter at the global wealth unit fell 1% to $3.4 billion from the comparable 2018 period. Money spent on “business growth” was more than offset by “lower amortization of intangibles and FDIC expense,” the bank said in earnings slides.

Pretax profit margin at Merrill Lynch Wealth in the third quarter reached 27.6%, and was 30% for the entire global wealth division, both records. The private banking unit, formerly known as U.S. Trust, employs 1,811 “primary” bankers who receive salaries and are generally compensated less generously than brokers who keep a percentage of the revenue they generate.

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