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Industry Spotlight > Wirehouse Firms

IBDs, Wirehouses Spotlight Recruiting, M&A News in Q4 Reports

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Many independent broker-dealers, national, regional and wirehouse firms have reported strong recruiting results for 2018 and momentum in 2019. But the return of market volatility and other factors did create some headaches, as well. Here’s a wrap-up of the latest developments:

Ameriprise Financial The firm has 9,931 financial advisors, up from 9,896 a year ago. Its advice and wealth-management assets, though, dropped 13% from last year to $431 billion. However, advisor productivity grew 9% to $620,000 per advisor on a trailing 12-month basis in 2018, after accounting for the net impact of its elimination of 12b-1 fees in advisory accounts.

Bank of America-Merrill Lynch The bank’s wealth business had a 43% year-over-year jump in profits to $1.1 billion. The unit’s pre-tax margin was 29% in Q4’18 vs. 26% in Q4’17. Revenue was roughly $5 billion, up from $4.7 billion a year ago. For the full year, wealth revenue grew 4% from the prior year to $19.3 billion, while Merrill Lynch’s sales jumped 4% to roughly $16 billion in 2018.

“Record revenue in wealth management was driven by client acquisitions across Merrill Lynch and U.S. Trust and includes a record number of new clients and deepening relations with existing clients,” said Andy Sieg, president of Merrill Lynch Wealth Management.

“Seventy percent of experienced advisors had their best year ever in 2018,” he explained. “And we had a record number of $1 million and $5 million producers.” The wealth unit added about 53,000 households as clients in 2018, which is roughly double its average results since being acquired by BofA; the average household brings $1.4 million in assets.

On a gross basis, new household additions by veteran Merrill Lynch reps rose 63% in 2018 from the prior year to roughly 4.6 new relationships per advisor. Average fees and commissions were $1.36 million for experienced advisors in Q4’18, while total advisor productivity was $1.05 million.

Across the unit, client balances were $2.6 trillion as of Dec. 31. Flows of client balances were $56 billion in 2018 vs. $14 billion in 2017. “The lion’s share” of these flows come from rival financial institutions, Sieg says, via the transfer of clients.

There were assets-under-management outflows of $6 billion in Q4’18 tied to market volatility, including “some shift from AUM to deposits,” BofA says. The unit also had $17 billion of brokerage inflows in Q4’18, with average loan balances hitting $164 billion.

Roughly three out of four advisors opened at least one BofA account for clients last year, up from one out of two in the prior year. “Plus, one-third of advisors opened more than 10 accounts in 2018,” Sieg added.

The wealth unit’s attrition rate last year was 2.6%. With training and recruiting, it now has 17,518 advisors — up from 17,355 a year ago. Including Merrill Edge reps, it has nearly 19,460. Merrill Lynch has 14,796 FAs as of Dec. 31, down slightly from 14,838 in Q3’18 and 14,817 a year ago.

Cetera Financial Group The firm says it recruited more than 800 advisors with roughly $5.3 billion in assets under administration in 2018. It declined to give its exact advisor headcount for the past two years, but states that it now has over 8,000 affiliated advisors. Owned by the private equity group Genstar Capital, Cetera does not have to release detailed financial information to the public.

Cetera says its recent results are being driven by its revamped recruiting team, now lead by Mike Murray, the head of business development who joined the firm about nine months ago from LPL. “Advisor response to our new pricing model and revamped business development team has been exceptional,” Murray said in a statement.

The firm’s advisor-alignment strategy includes partnerships with AdvisorNet, BAR Financial, Horizon Wealth Management, Carson Group and other affiliated firms and is focused on marketing and sales. The programs include training and performance marketing.

LPL Financial The number of net new LPL advisors dropped by 65 for the quarter to 16,109, excluding registered reps brought on via acquisitions, and fell 42 for the year, according to analyst Chris Shutler of William Blair. But President and CEO Dan Arnold says the IBD has a plan.

“Looking ahead, we have a large agenda for our service model,” he explained. The IBD aims to roll out a “customer care model … where our advisors can get answers to their questions using a variety of different service channels and methods.”

Recruited assets for 2018 totaled $27.3 billion, up 9% from 2017. It includes $8.6 billion of recruited assets in Q4. Net new assets for 2018 were $14.3 billion and $5.9 billion for the most recent quarter. Total brokerage and advisory assets were $628 billion as of Dec. 30, 2018.

Morgan Stanley The wealth unit’s net income soared 144% from a year earlier to $769 million. Pretax income, however, weakened to $1.01 billion from $1.15 billion, and the group had a pretax margin of 24.4% in the latest quarter.

Morgan Stanley’s advisor headcount rose by nearly 40 from the prior quarter to 15,694 as of Dec. 31, though that figure is down by about 20 from a year earlier. Lending from other bank units and broker-dealer margin activities were $83 billion in the fourth quarter vs. $80 billion a year ago.

Total client assets were $2.3 trillion in the fourth quarter, with fee-based assets at $1.0 trillion. Fee-based asset flows during the quarter were $16.2 billion. Average fees and commissions per advisor were $1.1 million.

For the full year, net revenues for 2018 were $17.2 billion, up 2% from $16.8 billion in 2017. The 2018 pretax margin was 26.2% compared with 25.5% a year ago, and net income improved 49% year over year to $3.5 billion. In December, Morgan Stanley said it was working with the Yext Knowledge Engine platform to improve its advisors’ websites and boost its prospecting success.

Raymond James Assets under advisement by registered reps weakened slightly from a year ago to nearly $691 billion from $692 billion but were down about 9% from the prior quarter. (Fee-based assets total $339 million.)

“We acted opportunistically during the quarter to deploy capital through share repurchases, as well as the recently announced niche acquisition of Silver Lane Advisors to complement and expand our investment banking business,” said Chairman and CEO Paul Reilly.

Raymond James has a total of 7,815 advisors, up two from the prior quarter and 278 from a year earlier. The number of independent advisors stands at 4,679 in the U.S., Canada and United Kingdom.

UBS The firm’s global wealth-management business had outflows of net new money of about $7.9 billion in Q4’18. Net new money outflows in the Americas were $3.6 billion, though money inflows to existing clients in the Americas were at “healthy” levels, according to the firm.

“In wealth management, particularly when I look at our overall results, of course they are not up to our ambitions and our expectations,” UBS Chairman Sergio Ermotti told Bloomberg Television.

Overall, the wealth unit has about 10,600 advisors worldwide; 6,850 are in the Americas. Recruiting loans to its global advisor force stand at $2.3 billion, down from $2.6 billion a year ago, while other advisor loans are $994 million as of Q4’18 vs. $580 million in Q4’17.

The advisors in the Americas have average yearly fees and commissions of roughly $1.35 million, up 8% from 2017. This tops the average production level of rivals at Merrill Lynch and Morgan Stanley when new registered reps are included; for veteran advisors, though, Merrill had average GDC of $1.36 million.

Wells Fargo The bank recently rolled out its channel for registered investment advisors, becoming the first of the four wirehouse firms to do so. The firm intends to use the affiliation option in its push to add fee-only RIAs, but existing advisors with Wells Fargo, including employee advisors and independent reps in the Wells Fargo Financial Network channel, can also move to it.

The program will allow RIAs to custody assets via Wells Fargo Advisors’ subsidiary First Clearing and use TradePMR, an outside firm, as their broker-dealer and source of office support. The RIAs affiliated with TradePMR can access Well Fargo’s bank products, trust services and related options, such as Envision investment planning software.

As of Dec. 30, Wells Fargo had 13,968 advisors, down nearly 600 from a year ago and about 100 from the prior quarter. Since the bank’s fake-accounts scandal erupted in fall 2016, when it had 15,086 registered reps, the bank’s wealth unit has lost 1,118 reps. Total assets also are declining. They stand at $1.7 trillion, down 10% from last year due to lower market valuations and net outflows, the bank says.

Janet Levaux is editor-in-chief of Investment Advisor. She can be reached at [email protected].


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