By Lisa Beilfuss 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 18, 2019).

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 bought Merrill Lynch in the throes of the financial crisis.

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

 

(END) Dow Jones Newswires

January 18, 2019 02:47 ET (07:47 GMT)

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