In a keynote speech at the Retirement Income Industry Association conference in February 2007, Bank of America executive Dan McNamara told an audience packed with insurance executives that he believed his company would eventually be a bigger force in the retirement business than any of theirs.

With Bank of America's purchase of Merrill Lynch for about $50 billion or $29 a share in mid-September, the bank would seem to have taken a big step toward that goal.

The acquisition includes Merrill Lynch Retirement Group, which serves as full-service provider for about 1,700 401(k) plans with about 2.6 million participants, according to Sean Cunniff, a research director of brokerage and wealth management for TowerGroup. The plans had about $91.3 billion in managed assets at the end of 2007, according to PlanSponsor magazine.

Among other retirement products, Merrill Lynch distributes MetLife's Personal Pension Builder deferred variable income annuity to those participants. Bank of America sells 401(k) plans, but it did not have its own 401(k) operation. The bank had tried to buy Citigroup's retirement plan business, CitiStreet, but CitiStreet was purchased in May 2008 by ING, Cunniff said.

One of the most immediate and significant impacts that this deal appears to make is in Bank of America's advisory services group, which currently has about 2,000 advisers. Merrill's brokerage has over 17,000 advisers, whose offerings include annuities.

"It will be easy to cross-sell Merrill's brokerage services with Bank of America's commercial banking services," said Scott MacDonald, head of Southern Methodist University's Southwest Graduate School of Banking Foundation. "[The bank has] got the golden ring. They've already built that client base, and have the necessary efficiencies and economies of scale."

Even before the Merrill acquisition, Bank of America was one of the top three banks in the U.S., with a huge presence in retail banking, investment banking, mortgage lending and credit card accounts, with a reported $1.7 trillion under management.

Merrill Lynch brings $1.6 trillion more, and owns almost half of BlackRock, the investment management company with more than $1 trillion under management. According to a Bank of America spokesman, his company is now the biggest financial services company in the world. (See sidebar, page 12)

Its closest banking rivals are Citigroup and JPMorgan Chase. One-time competitor First Union Bank was purchased in 2001 by Wachovia Bank, which was acquired by Wells Fargo in mid-October. But, in the fast consolidating financial sector, both Goldman Sachs and Morgan Stanley have become bank holding companies since September.

Gap-Filler for B of A

The shift to retirement at Bank of America predates the Merrill purchase. McNamara, managing director of the bank's planning investment products group, noted in a speech at the Retirement Income Industry Association's annual meeting in Boston in September 2008 that the topics of retirement and IRAs were barely on the bank's website in 2007.

But that began to change after the bank hired Jeff Carney from Fidelity in July 2007 to run its retirement and global wealth and investment management divisions. In November 2007, Bank of America launched a $35 million ad campaign targeting 16 million of the bank's customers who were nearing or in retirement (Jeff Carney recently left Bank of America for a senior marketing job at Putnam Investments).

Since then, Bank of America's site has added online advice, self-directed brokerage operations, a larger help desk for retirement income inquiries, and the creation of four customer niches, one for each financial life stage: Starting Out, On Your Way, Pre-Retirement and New Retirement. "We'll have more robust planning tools and solutions in the months ahead," McNamara said.

"Merrill Lynch fills an enormous gap for us," he said about the bank's recent acquisition of the wirehouse for a price that one former Merrill executive described as 20% of Merrill's true value. As for the bank's philosophy on retirement accumulation and distribution, McNamara said, "We'd like to see slower rolldowns in equity [allocations].

"We have a series of income models coming out. We also intend to work with our insurance partners to learn more about taking the [living] benefits of annuities and putting them around mutual funds," he added.

"For months before the [Merrill acquisition], Bank of America had built up substantial capabilities in terms of its website, communication synergies and product offerings. And it really strengthened its rollover IRA products," said David Macchia, CEO of Wealth2K, a communications firm that focuses on the retirement market.

"They were well on their way prior to this anticipated purchase of Merrill Lynch," he added. "Now the whole thing becomes more robust, stronger, more capable and ultimately, I would guess, more successful."

The acquisition of Merrill could give Bank of America an unmatched suite of services for wealthier clients, Macchia said. "I think it potentially shatters barriers that have faced the bank before, in terms of reaching a higher network of customers, more sophisticated customers and more sophisticated investors."

Brian Moynihan, president of Bank of America's global wealth and investment management in Boston, told the Boston Globe in mid-2007 that by 2012 he wanted to see a four- or five-fold increase in the $91 billion that people 50 and older currently hold in the bank's brokerage, retail or mortgage arms. The bank wants to compete with Fidelity, Vanguard and Charles Schwab.

It remains to be seen how smoothly the Bank of America and Merrill Lynch companies will mesh. Investment bankers and commercial bankers come from different worlds, said SMU's MacDonald. But if it does work, Bank of America's position in the retirement space will be unmatched.

 

 

Originally published by Retirement Income Reporter.