Bank of America's Wealth-Management Business Bucks Trend in Volatile Quarter
January 17 2019 - 4:06PM
Dow Jones News
By Lisa Beilfuss
Bank of America Corp.'s wealth-management business did what its
Wall Street rivals couldn't during a wild fourth quarter: It grew
its revenue.
For the parent of Merrill Lynch and U.S. Trust,
wealth-management revenue rose 7% to $4.99 billion from a year
earlier. That is as violent stock-market swings at the end of 2018
hurt other brokerage firms, diminishing client account balances and
generating lower fees for personal-financial advice.
Wealth-management head Andy Sieg said the result represents the
highest quarterly revenue since Bank of America bought Merrill
Lynch a decade ago. While client balances at Merrill Lynch shrunk
as markets fell, Mr. Sieg said brokers have been recruiting clients
and gathering new assets more aggressively because of pay changes
that the firm introduced two years ago. Those changes make
Merrill's compensation structure more aggressive than some rivals',
rewarding growth in assets and client debt and punishing the lack
of it via pay clawbacks.
Meanwhile, Morgan Stanley, JPMorgan Chase & Co. and Wells
Fargo & Co. each reported steep declines in fourth-quarter
revenue in their wealth-management arms.
As brokerages have been shifting customers into fee-based
accounts from commissions, firms' fortunes are more closely tied to
market moves. They typically charge 1% to 2% of the value of
customer assets, meaning a client with a $1.5 million investment
account pays $15,000 to $30,000 a year. Income from advisory fees
surged as balances ballooned during the stock market's nine-year
boom, but renewed market volatility in the fourth quarter shows
brokerages can't rely on their asset stockpiles growing on
autopilot as they did for much of the past decade.
Executives say charging fees makes for more reliable revenue
since commissions tend to be sporadic, and regulatory efforts in
recent years have given firms more reason to prefer fees. The Labor
Department's fiduciary rule was thrown out last year by a U.S.
Circuit Court, but firms had made substantial shifts toward fees
before its demise. That is in part because charging commissions
could violate the rule, which required wealth managers handling
retirement savings to act in clients' best interest. The Securities
and Exchange Commission is working on its own version of a rule
that may hold brokers to a higher standard than simply giving
suitable financial advice.
At Morgan Stanley, fee-based assets now represent 45% of total
client assets, and Chief Executive James Gorman said Thursday that
he expects the share to eventually be more than half. There,
wealth-management revenue dropped 6%, to $4.14 billion, in the
fourth quarter from a year earlier. "Results reflect the difficult
environment," the firm said in its earnings release.
For JPMorgan, revenue in the unit fell 5% from a year earlier,
to $3.44 billion, thanks to lower investment-management fees. Wells
Fargo said brokerage revenue slid 9% from the end of 2017, to $3.96
billion, because of smaller asset fees and other items.
Worried about slowing economic growth and trade tensions,
investors pulled a net $84 billion from U.S. mutual funds and
exchange-traded funds that track stocks over the last two months of
2018, with $75.5 billion of those outflows coming in December
alone, the biggest exodus from stock funds in a single month ever,
according to Lipper data going back to 1992.
The outflows pulled the S&P 500 down to its lowest point of
2018 during a tumultuous Christmas Eve selloff that left the broad
index within half a percentage point of a bear market, defined as a
fall of 20% or more from its Sept. 20 record.
Since then, the S&P 500 has clawed back 9.6%. But some
analysts suggest the wild swings and continuing macroeconomic
concerns might have more lasting impacts on consumers, who are
shifting more money into cash from investments at the highest rate
in years.
"Investor concerns are building," said Steven Chubak, brokerage
analyst at Wolfe Research. "The biggest sign of the shift in
sentiment is the portion of client cash as a percentage of assets,"
he said.
Merrill Lynch's Mr. Sieg said clients are dashing toward cash in
a way he hasn't seen in years. "I haven't seen an uptick like
this...in such a compressed period of time since the merger," he
said, referring to when Bank of America bough Merrill Lynch in the
throes of the financial crisis.
Write to Lisa Beilfuss at lisa.beilfuss@wsj.com
(END) Dow Jones Newswires
January 17, 2019 15:51 ET (20:51 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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