BAC Bank of America Corporation

By Michael Wursthorn 

Merrill Lynch's push to capitalize on now-delayed efforts to comply with retirement rules are already paying off.

Clients of Bank of America Corp.'s global wealth unit, including Merrill Lynch, moved a record $29.2 billion into fee-based accounts during the first quarter as Merrill brokers continued to push retirement savers who pay commissions for stocks and bonds to make a choice: move their accounts to a model that charges a fee based on a percentage of assets or to online brokerage platform Merrill Edge.

Those fee-paying assets, as well as conversions from prior quarters, are already helping Merrill's bottom line. Merrill's revenue rose 3% from last year to $3.8 billion in the first quarter as more asset-based fees helped offset lower traditional commission revenue, the bank said. Of Bank of America's $2.6 trillion in total wealth assets, about $946.8 billion are in longer-term investment strategies, including those that charge a fee.

"These solid results were produced in a period of change for the industry as firms and clients anticipate new fiduciary standards," finance chief Paul Donofrio said on a conference call Tuesday.

For years, brokerages have been putting more emphasis on boosting their revenue from recurring fees charged to customers. That is because fee revenue tends to be more predictable and steady compared with commissions, which can be harder hit during periods of market volatility. Researcher Morningstar Inc. says fee-based accounts can yield as much as 50% more revenue than commission accounts.

The shift to fee-based accounts from commission accounts has picked up since the Labor Department's fiduciary rule requiring brokers to act in the best interests of retirement savers was unveiled last year. The rule sought to eliminate conflicts from advice that often come when commissions are charged.

Bank of America has been at the fore of the charge. It set a course that sought to mostly do away with commissions in retirement accounts in favor of recurring fees and has been heavily advertising its shift. Merrill, for its part, decided that clients who wanted retirement advice from one of its brokers would have to pay a fee to avoid the rule's more onerous requirements and heightened legal risk.

J.P. Morgan Chase & Co. said it would follow a path similar to Merrill and steer its commission-paying retirement savers to accounts that charge a fee or to a self-directed option. While also reporting first-quarter earnings results last week, J.P. Morgan Chase & Co. said $8 billion of new assets flowed into long-term products, including those that charge a recurring fee. Total client assets stood at $1.8 trillion as of March 31, up 10% from the year-earlier period, the New York bank said.

Even after the Labor Department said earlier this month that it would delay the rule's April 10 implementation by 60 days to conduct a review of its economic impact, Merrill executives told brokers to push forward. J.P. Morgan said it would continue with its plan but push back its deadlines for clients to convert to coincide with the rule's new timeline.

Rivals such as Morgan Stanley and Wells Fargo & Co. have said they would continue to allow retirement savers to pay commissions in retirement accounts, although they would likely face some sales restrictions. Still, those banks have continued to report gains in fee-based assets in recent years.

Bank of America's first-quarter fee-based inflows were a record high for the wealth unit, which includes Merrill and private bank U.S. Trust, beating the previous mark of $20.4 billion set in the first quarter of 2013. The bank said the inflows were driven by "strong" client activity and the movement of assets from individual retirement accounts that pay commissions into fee-based accounts.

Meanwhile, online brokerage platform Merrill Edge posted a 21% jump in assets from the year-earlier period to $154 billion, the bank said. Mr. Donofrio credited the increase to more clients who wanted to direct their own investments. The bank launched Merrill Edge in 2010 to attract investors with less than $250,000 in assets, and a robo-adviser service was recently added to the platform.

Write to Michael Wursthorn at Michael.Wursthorn@wsj.com

(END) Dow Jones Newswires

April 18, 2017 14:40 ET (18:40 GMT)

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