Sallie Krawcheck, president of Global Wealth and Investment Management at Bank of America, is on a mission to debunk what she says are “myths” about the wealth management industry.
The myths, Krawcheck says, are that wealth management firms are losing advisors to independent firms; clients are leaving wealth management firms in “droves”; investment performance is all that matters to clients; that wealth management firms set product quota goals for their advisors; and younger investors are more risk tolerant than their elders.
In comments at the Investment Company Institute (ICI) annual conference in Washington on May 5, Krawcheck said that last year Merrill Lynch, with its approximately 15,500 advisors, only lost 36 advisors to independent firms, while it hired 25 advisors from the independent ranks.
“Last year we didn’t lose thousands of advisors to the independents, we didn’t lose hundreds; we lost 36, and we hired 25, so [that’s] a net loss of 11,” Krawcheck said. “And on client flows from those losses and hires, we were positive.” In fact, Krawcheck (left) said, “our FA attrition rate today is near record lows.”
The number of financial advisors at Merrill Lynch now stands at 15,695 compared with 15,511 in Q4 2010 and 15,178 in Q1 2010. Financial-advisor yearly production, or fees and commissions, rose to $931,000 per advisor in the first quarter from $913,000 in the previous period.
Another popular notion, she says, is that clients are leaving full-service wealth management firms in droves. “At Merrill Lynch, the client attrition rate is in the low single digits, a level that most firms would publish as a point of pride,” Krawcheck said.
In the first quarter of 2011, Merrill Lynch profits stood at $531 million, up 68.6% quarter-over-quarter and up 22.4% year-over-year. Revenues totaled $3.54 billion compared with $2.99 billion a year ago, for a gain of 18.5%. Quarter-over-quarter revenues were 3.3% higher from Q4 2010’s $3.43 billion.
Merrill Lynch client balances stood at $1.55 trillion versus $1.45 trillion in Q1 2010, 6.9% higher. Average assets under management (AUM) per advisor were $99 million in Q1 2011 versus $98 million in the fourth quarter of 2010 and $95.5 million in the first quarter of 2010.
Krawcheck said that yet another myth was that wealth management firms set product quotas and goals for their advisors to “cross-sell” products—a term Krawcheck said she “despises.” On the contrary, she said, “Merrill Lynch and its peers are reducing the number of proprietary products they sell.”
Another myth is that wealth management advisors only interact with their clients on a short-term, transactional basis. Merrill Lynch's advisors’ relationships with clients, Krawcheck said, “have endured, on average, 13 years, and one in four client relationships is 20-plus years in duration.”
It’s also untrue that pricing pressures in the wealth management business are “crushing,” Krawcheck said. “The ROA for Merrill Lynch has been flat for the past 15 years; that’s right, flat. In fact, Merrill Lynch and the historic brokerage industry have moved from being brokers to investment managers to wealth managers in a way that, by their continuing to add value, has fully offset any inherent pricing pressure–let me say that again: that has fully offset any inherent pricing pressure.”
While investment performance matters to clients, Krawcheck said, feedback that BofA-Merrill Lynch received on its recent “listening tour,” revealed that “solving problems, not delivering some number of basis points above the index, matters most of all” to clients. Investment performance ranked “about 7th” on the list of things that are important to clients about their relationship with their advisor.