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Practice Management > Building Your Business

Advisors Buck Trend of Falling Results

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Some global investment firms are reporting sizeable net losses for the fourth quarter and full-year 2007 as a result of write-downs associated with U.S. collateralized debt obligations. Nonetheless, they say, their financial advisors continue to churn out generally robust results.

For instance, Merrill Lynch’s retail brokerage operations now include 16,740 financial advisors, who are averaging more than $850,000 in annual sales or gross production. The broker-dealer recently reported global private client (GPC) net revenues for the fourth quarter of $3.3 billion, the second highest achieved in any quarter, up 10 percent from the prior-year period, reflecting increases across all revenue lines and the inclusion of First Republic revenues.

Merrill GPC net revenues for the full year 2007 were $12.9 billion, up 14 percent year over year, with revenue growth across all lines. Fee-based revenues rose significantly, reflecting higher market values and strong flows into fee-based products, the company says.

Turnover among FAs remained near historical lows, Merrill notes, particularly among top-producing FAs. FA headcount reached 16,740 at quarter-end, an increase of 130 FAs for the quarter and 860 for the full year, reflecting the continuing trend of favorable net recruiting from competitors and hiring into training programs.

Overall, Merrill Lynch had a net loss from continuing operations for full-year 2007 of $8.6 billion. Net revenues for 2007 were $11.3 billion, down 67 percent from $33.8 billion in 2006, while the 2007 pretax loss from continuing operations is $12.8 billion compared to pretax earnings from continuing operations of $9.8 billion for 2006.

The firm says its write-downs included $7.9 billion in the third quarter and $11.5 billion in the fourth quarter related to U.S. collateralized debt obligations comprised of asset-backed securities.

On February 1, Massachusetts Secretary of State William Galvin charged Merrill Lynch in connection with sales of “unsuitable” collateralized debt obligations (CDOs) to the city of Springfield. In 2006, after the city sharply improved its budget, it hired Merrill to invest surplus cash “in safe money-market like investments;” however, two Merrill brokers invested about $14 million into three CDOs, according to Massachusetts authorities.

“The city of Springfield and the Springfield Financial Control Board have said that neither body approved the purchases of these investments,” Merrill has explained in a statement. “After carefully reviewing the facts, we have determined the purchases of these securities were made without the express permission of the city. As a result, we are making the city whole, and we have taken appropriate steps internally to ensure this conduct is not repeated. We believe Springfield to be unique, with sales practices issues unique to these transactions.”

As for further executive shifts at Merrill, Ahmass Fakahany resigned from the co-president and COO roles in January. He joined the firm in 1987.

Citigroup recently reported a quarterly net loss of $9.83 billion, which included $18.1 billion in pre-tax write-downs and credit costs on sub-prime related direct exposures; for the full-year, it had net income of $3.62 billion.

Its Smith Barney advisor business, though, had net income of $327 million in the fourth quarter and sales growth of 27 percent, driven by 18 percent growth in fee-based and net interest revenues and a 43 percent increase in transactional revenues.

Smith Barney includes some 14,860 advisors as of the fourth quarter 2007, down from a peak of close to 15,000 at the end of the second quarter and about 14,875 in the third quarter. Annualized revenue per advisor stands at about $742,000, a slight drop from $768,000 in the third quarter of 2007 but up 11 percent from the same year-ago period.

Swiss-based UBS recently said it expects to announce a loss of about $4 billion for the full-year 2007. This includes some $12 billion in losses related to sub-prime mortgages and $2 billion in other positions related to the U.S. mortgage markets.

In December, UBS announced a capital-improvement program incorporating the replacement of its cash dividend with a stock dividend and a decision to re-issue Treasury shares for disposal.

This came one month after it moved to broaden the management structure of its global wealth business. As part of this shift, Anton Stadelmann became CFO of wealth management of the Americas, a business unit led by Marten Hoekstra. Previously, Stadelmann was CFO of UBS’ global wealth and business banking.

In the quarter ended September 30, 2007, UBS’ wealth management operations in the United States improved, with total operating income up 18 percent vs. the year-ago period to $1.54 billion and net income before taxes of $166 million. For the period, the number of U.S. advisors rose to 8,175 from 7,982 in the previous quarter and 7,856 in the year-ago period.

Revenues per UBS advisor in the United States for the three months grew 11 percent to $191,000 (or $763,000 on an annualized basis), and net new money per advisor was $579,000. Invested assets per advisor rose 9 percent to $100 million in the quarter.

Total client assets for all U.S. advisors stood at $872 million, up 7 percent over the third quarter of 2006. (UBS reports its results in Swiss francs; the figures stated here are based on an exchange rate of 1.09 Swiss francs per U.S. dollar.)

Wachovia’s earnings for the full year 2007 were $6.3 billion, despite $3.1 billion in net market-related valuation losses and an increased allowance for credit losses of $1.2 billion.

Wachovia’s capital-management unit, which includes some 14,607 Series 7 brokers and 3,296 Series 6 bank representatives, earned $350 million on 56 percent revenue growth in the fourth quarter, reflecting the impact of acquiring A.G. Edwards on October 1, 2007, and European Credit Management on January 31, 2007. Growth, though, was hurt by a $17 million valuation loss related to certain asset-backed commercial paper investments purchased in the third quarter of 2007 from Evergreen money market funds.

Total brokerage client assets grew 54 percent from year-end 2006 to $1.2 trillion, including $371.1 billion from A.G. Edwards.

Wachovia Wealth Management, which includes some 1,118 advisors with average yearly sales of $2.7 million, announced 20 new hires across Northern and Southern California in mid-January. As part of the build-out, Wachovia is establishing legal-specialty groups in San Francisco and Los Angeles to target and support law firms and attorneys as clients.

Janet Levaux is the managing editor of Research; reach her at [email protected].


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