Both Wells Fargo and Merrill Lynch saw a fall in first quarter wealth management revenues this year, according to the latest earnings reports.
Wells's revenue dipped 3%, or was $122 million less from the corresponding quarter last year, while Merrill's was down 2.6%, or $101 million year-over-year.
Wells Fargo blamed the latest revenue figures on lower brokerage transaction revenue and asset based fees. The wirehouse also reported a 3%, or $17 million, drop in net income from the same period last year.
Net interest income, however, recorded a 14% year-over-year increase, with average loans up 13% and average deposits 8%. Noninterest income was down 8% from the corresponding quarter last year for the firm.
Lower market valuations and reduced transaction activity drove revenue declines at Merril Lynch, according to Bank of America. Wealth management client balances were $2 trillion, a decrease of $47 billion compared to the year before. The bank blamed lower market levels and valuations.
Wells reported client assets of $225 billion, which declined 1% from the same period last year. The wirehouse also said that it completed its onboarding process of financial advisors from Credit Suisse, but did not say how many specifically moved between the firms. Wells' total number of advisors rose to 15,064, a 1% increase from last quarter.
Merrill Lynch added 227 advisors from a year prior, bringing its total number of advisors to 14,412, but lost 88 from the previous quarter. The decline was mostly from transitioning advisors to the firm's Global Client Strategy team, which serves international higher-net-worth clients.
Fiduciary Rule Impact
The pressure on earnings will likely continue at Wells Fargo and Merrill Lynch, and may spread to other industry firms in future quarters as they begin to comply with the recent adoption of the Department of Labor's fiduciary rule, says Alois Pirker, Aite Group's wealth management research director. Productivity may be impacted on different levels as advisors switch from commissions to a fee-based compensation for retirement investment products, according to Pirker.
"Advisors at Merrill Lynch work more with higher-net-worth clients, shifting the franchise decisively upmarket," Pirker says. "The pressure will be felt most by businesses with more mass affluent clients like Wells Fargo."
BANK EARNINGS
Merril Lynch's parent company, Bank of America, said profits declined 13% due to a drop in trading and underwriting revenues, and a 30% increase in provisions for credit losses, mostly tied to souring energy loans.
First-quarter net income fell to $2.68 billion, or 21 cents a share, from $3.1 billion, or 25 cents, a year earlier, according to a statement Thursday from the Charlotte, N.C.-based firm. Adjusted earnings per share were 20 cents, missing the 21-cent average estimate of analysts surveyed by Bloomberg.
Wells Fargo reported first-quarter profit fell 5.9%, as the firm set aside more money for soured energy loans and increased expenses. Net income slid to $5.46 billion, or 99 cents a share, from $5.8 billion, or $1.04, a year earlier, the firm said Thursday in a statement. That beat the 97-cent average estimate of 29 analysts surveyed by Bloomberg.
Additional reporting by Bloomberg
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