BAC Bank of America Corporation

By Lisa Beilfuss 

Merrill Lynch continued to pull client money into fee-based accounts during the second quarter, helping to push the brokerage's net income to the best level since it was acquired by Bank of America Corp. in 2009.

Clients of Bank of America's global wealth unit, which includes Merrill Lynch, moved $27.5 billion into fee-based accounts during the period. While that was down 5.8% from the first quarter in part because of a divestiture, it was a more-than fourfold increase from a year earlier. Net income rose to $804 million from $705 million a year earlier.

Higher client assets on the fee side means a bigger benefit for the firm from rising markets and higher interest rates, said Devin Ryan, a managing director at JMP Securities LLC. "Higher markets are flowing through fee-based lines," Mr. Ryan said, as clients pay a percentage of their account value for advisory services.

Brokerages have for years been putting more emphasis on boosting their revenue from recurring fees charged to customers. Fee revenue tends to be more predictable and steady compared with commissions, which can be harder hit during periods of market volatility. The shift has accelerated since the Labor Department's fiduciary rule requiring brokers to act in the best interests of retirement savers was unveiled last year; the rule aims to eliminate conflicts from advice that often come when commissions are charged.

Merrill Lynch has been more aggressive than its competitors in moving customers into fee-based accounts, Mr. Ryan said. To avoid the rule's more onerous requirements and heightened legal risk, Merrill has said clients who wanted retirement advice from one of its brokers would have to pay a fee. The firm said more than two-thirds of its advisers now have at least half of their client assets under a fee-based relationship.

On a conference call Tuesday, Bank of America Chief Executive Brian Moynihan said the possibility of a revised or rescinded fiduciary rule isn't likely to change the firm's strategy. "Let's see what happens," he said, but "I don't expect to change our course." The Labor Department is in the midst of reviewing the Obama-era regulation after President Donald Trump ordered the agency to do so after his inauguration. The rule went into partial effect June 9.

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

Meanwhile, online brokerage platform Merrill Edge reported 21% jump in assets from the year-earlier period to $159 billion, the bank said, thanks to market performance and a 10% increase in self-directed accounts. It is unclear how much of that money is net new money, analysts say. 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.

The firm added to its adviser ranks during the period. Merrill said it had 14,811 advisers at the end of June, up 1.6% from a year earlier.

Write to Lisa Beilfuss at lisa.beilfuss@wsj.com

(END) Dow Jones Newswires

July 18, 2017 14:00 ET (18:00 GMT)

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