Merrill Brokers Hanging On to More Assets and Loans

It’s not the best of news for Merrill Lynch brokers with long-festering complaints about parent Bank of America’s control over their customers, but the trend is moving in the right direction.

Almost $2 billion of assets in client brokerage accounts at Merrill Lynch and its private banking cousin, U.S. Trust, shifted to Bank of America last year, according to a table buried deep within the bank’s 10-K annual filing last month. The balances moved primarily to Merrill Edge, the discount brokerage that is part of Bank of America’s consumer banking division.

Many within Merrill’s army of some 14,600 brokers have complained since Edge’s founding in 2009 about being forced to refer lower-tier customers to the bank through strong-arm management tactics such as not being paid for household accounts under $250,000 (and not receiving credit for them on the payout grid). But there is some good news in the $2 billion migration number last year — the total is on the decline.

In 2015, $2.4 billion of customer money left Global Wealth and Investment Management brokerage accounts at Merrill for Edge and the bank, according to the “net migration” table. That’s 22.5% more than the $1.97 billion that moved to the bank in 2016.

At the same time, total net loans leaving GWIM (which gets more than 80% of its revenue from Merrill Lynch and the rest from U.S. Trust, its private bank) plummeted to a mere $7 million in 2016 from $97 million in 2015.

A bank spokeswoman declined to discuss the trend, but some brokers believe the numbers indicate that with each passing year there are fewer sub-$250,000 accounts left to transfer since new ones are not being opened.

The explanation doesn’t account for the drop in the transfer of Loan Management Accounts, as Merrill dubs its securities-backed credit lines, since most loans are made to wealthier customers who would not have to move to Edge. But the number of loans that did move are minuscule compared with GWIM’s balance sheet, and the number of outstanding loans are likely shrinking in general as rates rise, some brokers said.

Merrill brokers, to be sure, continue to bulk up their loan business. At the end of 2016, GWIM had total loans and leases on its balance sheet of $148.2 billion, up 6.6% from $139.0 billion one year earlier. Deposits at the wealth unit of $262.5 billion were up, by contrast, just 2.4% to $262.5 billion. Brokerage assets of $1.086 trillion rose 4.3% from $1.041 trillion at the end of 2015.

Deposits Flood Out of Merrill

The one rapidly migration metric out of Merrill to the bank is in deposits.

Just over $1.3 billion of total deposits moved from the wealth unit on a net basis last year, up from $218 million in 2015. That could indicate pressure on brokers to shift clients’ deposits out of Merrill’s landmark Cash Management Account program to a bank deposit program where they can be tapped for loans, investments and other traditional commercial banking purposes.

“They want us to open bank accounts but I haven’t experienced pressure to move from the CMA,” said a broker in the Midwest, noting that his location in an area bereft of Bank of America branches could make his branch an exception.

Merrill Edge, meanwhile, continues to be on the ascent as Bank of America targets investment services to more branch banking customers and as Merrill implements its policy of shifting customers with low-activity commission-based retirement accounts to Edge and its new robo-advisory platform.

Edge employs some 2,200 lower-tier “financial solution advisors,” while Merrill has 14,600 full-service brokers, according to its annual filing.

The cross-marketing of bank and brokerage products along with cross-referral of clients that Bank of America Chief Executive Brian Moynihan has boasted about in past annual reports was toned down in the just-released filing, a sign perhaps of the backlash that top cross-marketer Wells Fargo Corp. is experiencing from its fake-account scandal.

Merrill Edge assets have grown by more than 140% since it was launched in 2009, and Moynihan wrote in Bank of America’s 2015 letter to shareholders that cross-selling was a bankwide phenomenon. “We have seen dramatic growth in the way we are referring existing clients to other teammates who may not yet have a relationship with those particular clients. From nearly 300,000 referrals five years ago to roughly 5 million in 2015, we believe this is a competitive differentiator, and we are driving it….

“Our wealth management business had record loan levels, with loan growth of 9%, and significantly higher deposit levels,” he continued. “Financial advisors at Merrill and U.S. Trust continued to broaden and deepen client relationships, providing them strong investment advising capabilities along with full financial planning.”

In the just-published 2016 report, Moynihan merely flicked at Merrill Lynch and U.S. Trust, calling them “two of the best brands in the wealth management business, as well as the No. 1 market position across assets, deposits and loans….[T]hese businesses continue to integrate the broad capabilities of our company to meet client needs.”


Nick Kalikajaros 2017