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BofA Wealth Unit Boosts Profits 14%; No Plans to Sell Retirement-Plan Ops

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Bank of America topped earnings estimates in the first quarter but fell slightly short on revenue. Its wealth management business saw profits rise and — unlike rival Wells Fargo — is not seeking to get rid of its retirement-plan operations.

For the first quarter, the bank boosted net income 6% to $7.3 billion, or $0.70 per share, from $6.9 billion, or $0.62 per share, a year ago thanks to loan growth and lower expenses. Revenue, net of interest expense, was $23 billion vs. $23.1 billion a year ago.  

Its Global Wealth & Investment Management unit improved net income 14% from last year to $1.05 billion. Revenue for the group, which includes Merrill Lynch, weakened about 1% to $4.82 billion.

On an earnings call with reporters, a senior executive of the wealth unit who asked not to be named said the institutional retirement business generates and benefits from “lots of referrals” in other parts of the bank. “We see tremendous opportunity to continue driving growth around institutional retirement,” he said.

Client Balances, Advisor Headcount

The unit’s total client balances rose $111 billion, or 4% from last year, to $2.84 trillion. GWIM had a pretax margin of 29%, up from 26% a year ago but down from 30% in the fourth quarter of 2018.

While the full unit has about 17,534 financial advisors, the number for Merrill Lynch is 14,761 — down eight from the prior quarter and 68 from a year ago. The group’s attrition rate stands at about 3%, the executive says.

Average yearly fees and commissions for the quarter across the GWIM unit are $1.039 million vs. $1.046 million in the fourth quarter and $1.038 million a year ago. Among veteran Merrill FAs, this figure is about $1.350 million as of the first quarter.

Growth Drivers

Merrill advisors added a gross 17,625 new relationships in the quarter, up 41% from a year ago; this represents an average of 1.2 new client households per advisor in the quarter.

“On an annualized basis for experienced advisors, this could mean six gross relationships each in 2019,” according to the executive. These new clients brought in about $17.5 billion in assets.

“Obviously, the Thundering Herd is on the move, and advisors see the growth strategy bearing fruit in local markets,” he said. “And nearly two-thirds, or 62%, of advisors deepened relations via bank capabilities in the past year.”

About 11% of new client relationships — roughly 6,000 — for Merrill advisors came from referrals in other parts of the bank in 2018, but that level could rise to 8,000 this year. In the first quarter, there were about 41,000 referrals from Merrill to other parts of the company, and about one-fourth of these leads resulted in new business.

To further grow business across the company, the Merrill executive says some 300 Merrill Edge advisors (referred to as Financial Solution Advisors), who work with clients on digital-based plans, will be placed in Merrill branches — up from 25.

More Milestones, Issues

Merrill’s ETF-based Guided Investing portfolios now have about $150 billion in assets.

“This is a very strong story for benefits to clients and … benefits to the firm in terms of positioning advisors for more rapid organic growth over time,” the wealth management executive said. 

In terms of what a downturn in stocks and the economy could mean for the business, “Wealth management today looks very different from 10 years ago,” he explained. “80% of revenue is derived from net interest margin and fee-based investing programs.

“Less than 20% is from traditional transaction[-based] brokerage activities, which is inherently more volatile. We have repositioned the business to make it more durable,” the executive added. 

In total, the banks sees it self adding about 50,000 net new households from a variety of sources in 2019 — or about 12,000 per quarter. “We are experiencing a very strong level of organic growth, and that is encouraging to us. Gross [new] household acquisitions are up with existing client-retention strong,” he added.

GWIM had total assets of $2.84 trillion as of March 31.