Merrill saw its inflow of fee-generating client assets nearly double year over year in the third quarter, driven in part by its return to recruiting.
In a call with reporters on Tuesday, Merrill's co-heads said the Bank of America wealth management subsidiary brought in $18 billion in new fee-producing assets from July to September. That was roughly twice the haul for the same period in 2023.
The inflow helped drive Merrill's holdings in advisory accounts to $1.5 trillion and its total client balances to $3.5 trillion, an 18% year-over-year increase.
Merrill co-heads Eric Schimpf and Lindsay Hans declined to say exactly how much of the new assets was due to recent recruiting deals. They instead noted that Merrill, along with Bank of America Private Bank, which works with wealthy clients, added roughly 5,500 net new client relationships in the quarter.
READ MORE:
Of those, more than a third came from recent graduates of the firm's training program. The rest of the relationships were either forged by longtime Merrill advisors or imported by newly recruited ones.
"We have seen increases in our level of experienced advisor recruitment," Hans said. "So it is contributing at a higher level in terms of acquisition than it has in the past, when we weren't recruiting."
Return to recruiting
Following a long fallow period in which Merrill wasn't trying to recruit at all, the firm has made some substantial hires in recent months. In April, it pulled over
Schimpf said Merrill is indeed seeking to hire select advisory teams but that recruiting isn't a "core pillar of our strategy."
"Our major investment in really building the advisor force at scale is having a strong, successful training program," he said.
Schimpf also confirmed that Merrill's rate of attrition — or the percentage of its advisor workforce that leaves in any given year — remains below its historical average of about 4%. As part of a bid to hold on to industry veterans,
Banking on banking
Much of Merrill's growth plans have centered on getting investors to start banking relationships with Bank of America. Among wealth and consumer investment clients, 61% also have a banking relationship with the firm.
Bank of America's wealth units saw a $2.4 billion increase in customers' loan balances in the third quarter and the opening of roughly 30,000 new bank accounts.
"With a continued increase in banking product usage from our investing clients, the diversity of our revenue base continues to improve," Alastair Borthwick, Bank of America chief financial officer, said in an earnings call.
Revenue and net income
Merrill and Bank of America Private Bank, which together compose Bank of America's global wealth and investment management unit, reported an 8% year-over-year increase in total revenue, which hit nearly $5.8 billion in the third quarter. Of that, nearly $4.8 billion came from Merrill and $1 billion from the private bank. About $3.5 billion of those revenues came from asset management fees, a figure up 14% year over year.
The units also reported a 10% year-over-year increase in noninterest expense to $4.3 billion, "driven primarily by revenue-related incentives." The wealth management division's net income for the quarter came to $1 billion, a figure basically unchanged year over year.
Assets under management
For the first three quarters of 2023, Merrill and Bank of America Private Bank saw a nearly 30% increase in its net inflows into its advisory accounts — $56.7 billion in total. That influx helped bring the division's total assets under management to $1.86 trillion by the end of the quarter. Of that, $1.5 trillion was held in advisory accounts at Merrill, a figure up nearly 26% year over year and a record high for the wealth management unit.
With the assets under management added to those held in brokerage accounts, on deposit and on loan, Merrill and Bank of America Private Bank reported nearly $4.2 trillion in client balances.
Cash off the sidelines
Nancy Fahmy, the head of the investment solutions group for Merrill and Bank of America Private Bank, said the Federal Reserve's recent decision to lower interest rates has started prompting clients to move uninvested cash back into advisor-managed accounts. When the Fed's target rate was at its recent high of between 5.25% and 5%, many investors were chasing the relatively high yields offered at low risk by money markets and other "cash alternatives."
But with the half-point cut to that rate last month, clients are starting to see the easy returns disappear and are seeking new plans for their money.
"The recent highly anticipated Fed rate cut of 50 basis points has been a catalyst for advisors and clients really looking to put their cash to work," Fahmy said. "For the past year, our investment solutions specialists have been engaging with our advisors and clients directly who have overweight cash positions, also short duration fixed-income positions, to educate them on fixed income and interest rates, and also to educate them on our managed solutions to help them extend duration in their portfolios."
Online engagement and AI
Hans noted that 84% of Merrill and the private bank's clients now manage their accounts and deal with advisors and bankers online. That has led to various efficiencies, she said.
A digital appointment system released in the third quarter, for instance, has reduced the amount of time needed to book a meeting with an advisor to 2 minutes from 20 minutes. That is expected to eventually save 75,000 work hours a year.
"You add that up across a large book of business, we're really putting time back into the advisor operating model," Hans said.
Hans said Merrill and private bank advisors are using artificial intelligence to help advisors know when might be a good time to check up on clients.
"One very recent example was with the hurricanes in Florida," she said. "We were able to look at the hurricanes' projected paths and the storm surges with on-the-ground intel about tornadoes, and directly email those advisors who had clients in the storms' path to make sure that they reached out."
