From the June 2010 issue of Research Magazine • Subscribe!

June 1, 2010

Major Firms Grow Results on Strong 'Q1 Markets

The wirehouse firms issue their first-quarter results.

First-quarter results at the wirehouses indicate that Morgan Stanley Smith Barney leads the pack in terms of the number of financial advisors, while Merrill Lynch FAs continue to have the highest level of trailing-12-month revenues.

Merrill and UBS are neck in neck in terms of average assets per advisor, at about $100 million per FA.

For the first quarter of 2010, Bank of America's Merrill Lynch Global Wealth Management unit had a revenue drop of $202 million to $3.1 billion from a year earlier. However, the impact on net interest income was "partially offset by improvements in investment and brokerage income due to higher valuations in the equity markets and increased transactional activity," the company said in a statement.

Merrill Lynch's asset-management fees produced $820 million in income vs. $788 million in the first quarter of 2009. Brokerage income stood at $766 million vs. $750 million a year before for a total of $1.59 billion in fees and income at the BofA unit.

Merrill had net income of $360 million in the first quarter of 2010.

It now includes some 15,005 financial advisors, down from 15,822 a year ago. The company reports that these advisors have average trailing-12-months sales (or production) of $807,000. This is up a bit from $803,000 a year ago but down somewhat from $830,000 in the fourth quarter of 2009.

Total client balances at Merrill stand at $1.45 trillion vs. $1.29 trillion a year earlier. This represents about $97 million in average client assets under management per FA vs. $81 million per FA a year earlier.

Morgan Stanley

In the quarter ended March 30, 2010, MSSB reported that it had 18,140 financial advisors, from 18,135 in the fourth quarter of 2009 and 18,444 in the second quarter of 2009. In the first quarter of 2009, before the joint venture with Smith Barney, Morgan Stanley had 8,148 advisors.

MSSB advisors have annualized sales of $685,000 vs. $630,000 a year-ago for the Morgan Stanley advisors.

Assets under management for MSSB are $1.6 trillion vs. $1.56 trillion in the fourth quarter of 2009 and $525 million a year ago. This represents an average of $88 million in AUM per advisor.

Fee-based assets are $413 billion or 26 percent of total assets vs. $379 billion or 24 percent in the fourth quarter of 2009.

The group had new assets of $5.8 billion in the first quarter of 2010 vs. negative $3.7 billion in the previous quarter.

The joint venture's first-quarter results, reported as Morgan Stanley's Global Wealth Management Group, included pre-tax income from continuing operations of $278 million, compared with $119 million in the first quarter of last year. Income after a non-controlling interest allocation to Citigroup and before taxes was $163 million. The quarter's pre-tax margin was 9 percent.

The group also had net revenues of $3.1 billion, compared with $1.3 billion a year ago. The increase primarily reflected incremental net revenues following the closing of the MSSB transaction, the company said in a statement.

Morgan Stanley Smith Barney President Charles Johnston said recently that it expects to continue closing offices as part of the firm's consolidation, eventually getting down to about 750 branches from today's 870.

The joint venture between Morgan Stanley and Smith Barney, formed on May 1, 2009, started at about 1,000 offices.

It still has some overlapping locations, excess capacity and expiring leases, according to a spokesperson. Morgan Stanley, however, does not intend to exit any markets, and "many markets will continue to support multiple locations," the spokesperson said.

(Before the joint venture, Morgan Stanley had about 465 U.S. branches.)

Wells Fargo

Wells Fargo Advisors' Wealth, Brokerage and Retirement operations reported that it now has some $1.1 trillion in retail brokerage assets, up 22 percent from the first quarter of 2009.

The unit's revenue grew 10 percent from the fourth quarter and 16 percent from the same year-ago period "on asset-based fees and increased brokerage transaction activity," the company said in a statement.

Managed-account assets rose 47 percent to $208 million.

It now includes 15,119 Series 7 financial advisors, down about 900 or 6 percent, from a year ago. Average assets per advisor stands at about $73 million.

In early May, Wells Fargo Advisors hired Thomas R. Isaacs from Merrill Lynch to serve as the market manager for its New York City branches.

UBS

UBS reported a first-quarter profit of roughly $2.9 billion, topping analysts' expectations and giving the Swiss-based investment bank its best results in nearly three years vs. a loss of about $2.6 billion in the same year-ago period.

In the quarter ended March 31, UBS' Wealth Management Americas division has a pre-tax profit of 15 million Swiss francs vs. a pre-tax loss of 35 million Swiss francs in the first quarter of 2009.

The number of UBS financial advisors in the Americas, however, fell by 217, or 3 percent, to 6,867 in the first quarter of 2010 vs. 7,084 in the fourth quarter of 2009 "as a result of voluntary departures and limited recruiting."

A year before, UBS had about 8,760 financial advisors. Thus, it is down nearly 1,900 FAs, or about 22 percent, from a year ago - meaning that it has lost more than one in five advisors.

Client assets stand at 768 billion Swiss francs or 112 million Swiss francs per FA - or about $101 million per FA in U.S. dollars. This is up from 711 billion Swiss francs a year ago and 737 billion Swiss francs in the fourth quarter of 2009.

According to a company spokesperson, UBS' advisors have yearly sales, or production, of roughly $800,000 per FA.

UBS' U.S. wealth management's personnel costs rose 13 percent over the fourth quarter to 1,069 million Swiss francs.

Financial advisor compensation grew as a result of "higher accruals for variable compensation [including deferred compensation] and the introduction of the GrowthPlus program, a compensation program based on prospective revenue production and length of service with UBS," the company said in its quarterly report.

Year over year, the division's personnel costs grew 6 percent in U.S. dollars, "due to higher financial advisor-related compensation on higher revenue levels and the introduction of the above-mentioned GrowthPlus program," as well as from higher FA recruiting costs.

GrowthPlus is aimed at rewarding advisors with five or more years of experience with the bank and $500,000 and up in yearly sales or production.

Financial advisors in the Americas had net new money outflows of 6.4 billion Swiss francs vs. 11.3 billion Swiss francs in the previous quarter. "Though net new money remained negative, outflows related to financial advisor attrition decreased. Net new money from financial advisors with UBS for more than one year was positive for the first time since the first quarter of 2008," the company said.

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