Billions Gush Into Merrill's Fee Accounts as Obama-Era Rule Looms -- Update
April 18 2017 - 2:55PM
Dow Jones News
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)
Copyright (c) 2017 Dow Jones & Company, Inc.
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