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Technology > Investment Platforms > Turnkey Asset Management

Q2 ’11 Earnings: Mixed Wirehouse Results as Wealth-Management Units Improve Sales

By Janet Levaux

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Bank of America said it had a net loss of $8.8 billion, or $0.90 per share, for the second quarter, compared with net income of $3.1 billion, or $0.27 per share, in the year-ago period. Revenue fell to $13.23 billion from $29.15 billion a year ago as the company settled mortgage-related issues.

Total sales for the global-wealth-and-investment management (GWIM) unit, led by Sallie Krawcheck, were nearly $4.5 billion in the second quarter vs. $4.2 billion a year ago and $4.5 billion in the first quarter of 2011. Total client balances were $2.20 trillion, up from $2.05 trillion a year ago and down slightly from $2.23 trillion in the first quarter of 2011.

Net income for GWIM was $506 million, up from $329 million in the year-ago quarter but down from $533 million in the previous quarter. Return on equity for the group rose to 11.54 percent in the most-recent period vs. 7.27 percent last year and 12.06 percent in earlier quarter.

The number of Merrill Lynch advisors rose to 16,241 in the second quarter, up from 15,299 last year and 15,695 in the first quarter. Sales (or fees and commissions) per advisor on a trailing-12-month basis totaled $894,000 in Q2 vs. $843,000 last year and $931,000 in Q1.

Revenues for all Merrill Lynch advisors were $3.494 billion, up from $3.138 billion a year ago and down from $3.540 billion in the first quarter.

Total client balances for Merrill Lynch were $1.54 trillion in the second quarter, up from $1.40 trillion a year ago but a slight drop from $1.55 trillion in the first quarter of 2011.This means that average assets per advisor are now about $95 million.

Bank of America says that — as part of its expansion of the mass-affluent-investor Merrill Edge platform — it has hired 70 financial solutions advisors (FSA) to be added to banking centers in the New York region. This hiring is part of BofA’s plan to double the number of Merrill Edge advisors to 1,000 by year-end.

Morgan Stanley

Morgan Stanley reported a net loss of $0.38 per share for the second quarter vs. a gain of $0.80 a year ago. Revenue was $9.3 billion vs. $8 billion a year ago. Earnings per share for Q2 included a negative adjustment of about $1.7 billion, or $1.02 per share, related to Morgan Stanley’s conversion of preferred stock, held by Mitsubishi UFJ Financial Group, into common stock.

In global wealth management, continued cuts to the advisor force contributed to improvements in both average revenue (or fees and commissions) per advisor and average assets under management per FA.  The wealth unit, led by James Gorman, had net revenues of $3.5 billion, client assets of $1.7 trillion and 17,638 advisors worldwide. Net new assets for the quarter were $2.9 billion with net flows in fee-based accounts of $9.7 billion.

Net revenues for the global wealth unit were $3.5 billion, up 13 percent from a year ago and 1 percent from the previous quarter. Average trailing-12-month FA productivity (or fees and commissions) was $785,000 — up 16 percent from last year and 2 percent from the first quarter.  Assets per advisor in the second quarter averaged $97 million, a jump of 17 percent from last year and unchanged from the previous period.

The firm’s FA headcount of 17,638 was down 440 from the same year-ago period and 162 from March 30, as the brokerage firm continues to “prune underperformers,” it said in a statement.

Positive net new assets were $2.9 billion, representing an $8.4 billion turnaround from 2Q10, when net asset outflows totaled $5.5 billion. The latest quarter’s net inflows, though, were down from the $11.4 billion experienced in the first quarter.

Net income for the unit, after taxes of $138 million and a non-controlling interest allocation to Citigroup of $4 million, was $180 million, topping last year’s results by 64 percent and down 2 percent from the first quarter.

Wells Fargo

Wells Fargo reported record net income of $3.9 billion, or $0.70 per share, for the second quarter of 2011, up from $3.1 billion, or $0.55 per share, a year ago and a slight increase from $3.8 billion, or $0.67 per share, for the first quarter of 2011. Revenue was about $20.39 billion, compared with $20.33 billion in first quarter 2011 and $21.39 billion in the same year-ago quarter.

The Wealth, Brokerage and Retirement group — which includes Wells Fargo Advisors — had net income of $333 million in the June quarter, up from $270 million a year ago but down slightly from $339 in the March quarter.

Revenue for the group was $3.1 billion, up 8 percent from the year-ago period and down 2 percent from first quarter 2011 due to lower brokerage transaction revenue, according to the company.

Wells Fargo Advisors, led by David Carroll, says it is the nation’s third-largest brokerage business with 15,194 financial advisors and about 3,800 bankers — for a total number of 18,989 licensed professionals. Nearly 11,100 financial advisors work in the traditional brokerage channel of Wells Fargo Advisors. The firm’s in-bank brokerage channel employs 2,708 FAs and 3,795 licensed bankers located in Wachovia and Wells Fargo bank stores.

In the prior quarter, Wells Fargo had 200 more licensed professionals or 19,194 FAs, 15,236 traditional FAs and 3,958 licensed bankers. At the end of 2010, WFA had 19,574 advisors — with 15,188 in non-bank channels and 4,386 in banks. Year over year, Wells Fargo says the number of traditional FAs is up 1 percent.

For the retail brokerage operations, client assets of $1.2 trillion were up 12 percent from the prior year. Managed account assets increased $62 billion, or 31 percent, from a year ago “driven by strong net flows and solid market gains,” according to Wells Fargo.

Average assets per FA are roughly $63 million, including the bank advisors; excluding this group, average AUM is $80 million per FA. Average annualized sales or production per FA based on the latest quarter’s results stands at $653,000 vs. $669,000 in the previous quarter. Excluding bank reps, this figure is roughly $816,000 vs. $840,000 in Q1.

During the second quarter, the company announced the sale of H.D. Vest Financial Services.

UBS

UBS reported second-quarter net income of 1 billion Swiss francs, or 0.26 Swiss francs per share, vs. net income of 2 billion Swiss francs, or 0.52 Swiss francs per share. In the first quarter of 2011, net income was 1.8 billion Swiss francs, or 0.47 Swiss francs per share.

According to the Swiss-based bank, lower revenue across most businesses was caused by the strengthening of the Swiss franc as well as lower trading income in the investment bank’s fixed income, currencies and commodities business.

UBS Group CEO Oswald J. Grübel said in a press release that the Swiss bank had no intention of selling its U.S. wealth-management operations, now led by Bob McCann.

The Wealth Management Americas unit had a pre-tax profit of 140 million Swiss francs in the second quarter of 2011, up from 111 million in the first quarter of 2011 and a loss of 67 million Swiss francs a year ago.

Second-quarter net new money was 2.6 billion Swiss francs compared with 3.6 billion Swiss francs in the first quarter and outflows of 2.6 billion Swiss francs in the year-ago quarter. This represents about $1.2 million in net new money per FA during the most recent period.  Net recruiting of financial advisors was the primary driver of net new money in the second quarter, according to the company.

The number of FAs in the wealth-management unit in the Americas is 6,862­ — up from 6,760 last year and 6,811 in the first quarter of 2011. Assets under management were 694 billion Swiss francs vs. 742 billion Swiss francs last year and 750 billion Swiss francs in the earlier period.

Invested assets under management were 650 billion Swiss francs, or roughly $113 million per advisor. Gross production or fees and commissions per rep stood at $884,000.

 Analysis

Statistics recently compiled by UBS put its Americas operations ahead of its wirehouse rivals in terms of net new money and assets per advisor for the first half of 2011, which some experts say are “impressive” results.

“UBS has traditionally had the smallest sales force but with the highest average assets per financial advisor and highest revenues per FA,” said Chip Roame, head of Tiburon Strategic Advisors in the Bay Area, in an interview. “I think this is due in part to its willingness to recruit and pay up for these FAs.”

Overall, UBS’ wealth-management operations in the Americas were dwarfed by those of Bank of America, Wells Fargo and Morgan Stanley Smith Barney: UBS’ revenue in the Americas was roughly $3 billion for the first six months of the year vs. $6.2 billion for Wells, $6.9 billion for Morgan Stanley and $7.0 billion of BofA-Merrill Lynch.

In terms of overall revenue growth, Merrill Lynch had the best results — improving 15 percent vs. 12 percent for UBS and Morgan Stanley and 8 percent of Wells Fargo.

The size of the wirehouse advisor forces (excluding bank advisors) is:

  • Morgan Stanley: 17,638
  • Merrill Lynch: 16,241
  • Wells Fargo: 15,194
  • UBS; 6,862

Annualized revenues (or fees and commissions) per advisor are now roughly $912,000 at Merrill; $867,000 at UBS; $776,000 at Morgan Stanley; and $648,000 at Wells Fargo. These production levels expanded from a 10 percent year-over-year pace at Merrill to a 16 percent clip at Wells Fargo.

Despite its size­­ — or perhaps because of it — UBS advisors attracted $16.3 billion in net new money in the first half of 2011. Morgan Stanley drew $14.3 billion, while the other two firms chose not to disclose such information in their earnings information.

“UBS is doing well with its small size given all the consolidation in the industry,” said Bill McGovern, head of the recruiting firm B-D Search in St. Petersburg, Fla., in an interview.

 In terms of net new money per financial advisor, UBS’ FAs added about $2.4 million on average in the first six months of 2011 vs. $802,000 per FA at Morgan Stanley.

“UBS’ net new money per FA for the first half is impressive,” said Roame (left). “It even led Wells Fargo in the first half in aggregate, which has far more FAs.”

On a per-advisor basis, assets grew year over year at a 5 percent clip at Merrill and as much as 19 percent at UBS. UBS has the highest AUM per advisor at $113 million, followed by $98 million at Merrill and $97 million at Morgan Stanley.

These figures are notable, observers say. “Looking at first-half statistics, I see them as number one in assets per FA and number two in revenues per FA,” Roame shared.

Assets under management for the wirehouse firms’ wealth-management units overall grew between 10 percent at BofA-Merrill and 20 percent for UBS. Morgan leads the charts in terms of total AUM with $1.7 trillion, followed by Merrill with $1.5 trillion, Wells with $1.4 trillion and UBS with nearly $775 billion.

It’s important to look at how the performance growth of the wirehouses and advisors tracks the markets, McGovern points out. “They need to be substantially ahead to say they are doing something special here,” he said.

During the first six months of 2011, the S&P 500 gained 6 percent, and the Dow Jones was up roughly 7 percent. “What looks pretty good to me is that UBS’ growth in assets [was] 20 percent,” McGovern said.

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