A decade after its launch, Bank of America Merrill Lynch's 401(k) platform for small businesses is approaching 1 million participants — and it's expanding beyond its signature 401(k) focus.
"We feel like we have momentum," said Rich Linton, the executive responsible for managing B of A Merrill Lynch's small-business retirement solutions.
The small-business 401(k) platform, known as Advisor Alliance, provides Merrill Lynch investment and advisory services along with record keeping and retirement plan administration services to small businesses. At the start of 2011, the program's assets stood at a record $26 billion, up from $22 billion at the end of 2009 and $17 billion at the end of 2008.
B of A Merrill Lynch projects that the platform, which around the middle of last year touched about 900,000 participants, could reach 1 million by the end of this year, at more than 40,000 employers. The growth appears to be largely driven by companies with $5 million to $25 million in retirement plan assets, Linton said.
In addition to 401(k) solutions, Advisor Alliance, which until last year was known as MLConnect, has begun delving into the defined benefits arena. B of A Merrill Lynch in April 2011 expanded relationships with two of its 12 preferred partners within Advisor Alliance — John Hancock Financial, a unit of Manulife Financial Corp., and Hartford Financial Services Group Inc. — to include defined benefit plans for small-business clients and prospects with up to $5 million of plan assets.
The expansion grew out of feedback from advisers, said Linton, a former Fidelity Investments executive who joined B of A Merrill Lynch last year. "When I came aboard in July, advisers said, 'We're really only using a sliver of our partners' services,' " he said.
Adding defined benefit plans to the mix makes sense, said Sophie Schmidt, senior wealth management analyst with Aite Group in Boston. Certain small businesses are increasingly returning to the plans as a perk for valuable employees. "It's becoming a way for small businesses to differentiate themselves," she said.
Growing companies in hot sectors are adopting the plans as a tool to retain valuable employees, Schmidt said. And such companies are the kind that may have initial public offers — enriching their leadership and creating potential new assets for advisers, she said.
Later this year, Advisor Alliance will add new preferred partners — Great-West Retirement Services, a unit of Great-West Life and Annuity Insurance Co., slated to join in May — as well as "new capabilities from existing partners," Linton said. "Those are our two focuses for Q2 and Q3."
In 2010, more than 2,000 of B of A Merrill Lynch's 15,500 financial advisers delivered at least one Advisor Alliance solution to a small-business owner client. That's up from 1,750 in 2009.
By the looks of it, the approach can work out well for the advisers, according to Schmidt. For one thing, it enables them to earn a modest ongoing fee for relatively little work, she said. "You don't necessarily have to do much work beyond partner and investment selection," she said. Employees likely often use the platform's self-service tools rather than going to the adviser for guidance, she said.
Also, using the platform to target small businesses provides a great way to gain access to wealthy executives, Schmidt said. "I see it as a great opportunity for Merrill Lynch financial advisers to get great clients that are small-business owners," she said. "Whereas if they go to a large firm, the [top executives] are probably beyond their wealth spectrum, and they probably already have advisers."
The recent enhancements to Advisor Alliance follow several in 2010. For instance, through a redesigned Web-based portal, B of A Merrill Lynch financial advisers review the investment performance of retirement plan funds and generate customizable quarterly reports for small-business owners.
Expanding B of A's retirement business is a crucial goal of Sallie Krawcheck, who took the helm in 2009 as head of its wealth management and brokerage operations. In the small-business arena, nearly 8,200 Merrill Lynch advisers delivered at least one new small-business retirement solution to their clients in 2010, including Advisor Alliance, simplified employee pension plans and simple individual retirement accounts, and B of A Merrill Lynch's Retirement Cash Management Account product. That was up 10% from 2009.
The company's institutional retirement business, which targets larger employers, last year gathered $17 billion of new retirement benefit plan assets, across the 401(k), pension and equity compensation plan markets.