Merrill’s advisor drain continues as firm celebrates Q2 silver linings

July 18, 2022 5:00 PM

Keeping up with the Q2 earnings trend of declining income and lots of talk about resilience, Bank of America’s wealth management business is celebrating a number of quarterly highs despite difficult economic conditions.

The period also saw the Wall Street giant endure another drop in advisor headcount, continuing a downward streak Merrill Lynch has kept going since eclipsing 20,600 advisors two years ago.

Bank of America reported $6.2 billion in net income in the second quarter, representing a 32% percent decrease from the $9.2 billion reported a year ago, according to earnings statements released July 18. But BofA’s revenue climbed to $22.7 billion — up 6% from the $21.5 recorded one year ago — driven by higher interest rates, lower premium amortization and loan growth.

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“Our U.S. consumer clients remained resilient with continued strong deposit balances and spending levels. Loan growth continued across our franchise and our markets teams helped clients navigate significant volatility reflecting economic uncertainty,” Bank of America Chairman and CEO Brian Moynihan said in a statement.

Scroll down for some of the key takeaways from Monday’s earnings report.

Wealth management highlights

A collection of quarterly and “best-ever” figures were bright spots for BofA’s global wealth and investment management business in the previous quarter. The company reported revenue of $5.4 billion, up 7% from last year; and net income before taxes of $1.5 billion, a 16% year-over-year improvement. Both figures are records for the second quarter.

The firm also notched an all-time record for net interest income with $1.8 billion, a 33% increase compared to one year ago.

But Merrill client balances dropped to $2.8 trillion while AUM balances slid to $1.1 trillion, representing year-over-year decreases of 10% and 8%, respectively.

When looking specifically at alternative investments, AUM balances surpassed $75 billion, up 36% year-over-year. Meanwhile, gross alternative investments sales totaled $5.5 billion in Q2, up over 55% compared to last year.

Advisor drain continues

The number of advisors company-wide shrunk to 18,449 by the end of the quarter, down from the 19,385 flying the Bank of America flag at this time last year. Quarter-to-quarter, the firm lost 122 wealth advisors.

Historically, Merrill has hired about 2,000 advisors into its training program each year, according to the company. In addition, the firm tripled its influx of experienced advisors to 93 for the quarter — reportedly the largest incoming cohort since 2010.

Beyond wealth management, Bank of America CFO Alastair Borthwick said BofA was down a little more than 700 associates overall.

“And we, like many other companies, are doing many things to tackle challenging labor market conditions, and we're meeting that challenge pretty well so far,” Borthwick said during Monday morning’s earnings call.

Embracing the digital future

As the pandemic continues to make face-to-face client meetings a fleeting memory, BofA’s digital platforms are growing. About 82% of Merrill Lynch clients are actively using Merrill and Bank of America’s online or mobile platforms, and more than 358,000 households exchanged 1.4 million secure messages during the quarter.

Merrill added 4,500 net new households in Q2, down from 6,000 households added last year. But the company says 77% of households are now enrolled in eDelivery, and advisors generated 255,000 financial planning reports during the quarter, a 59% year-over-year improvement.

Clients also showed some love to AI in the second quarter, matching advisor enthusiasm for the burgeoning tech. Interactions with Erica, Bank of America’s virtual financial assistant, were up by 33% over the past three months.

Closing strong

Moynihan said BofA’s “strong organic growth” stemmed from new account openings for checking, retail investments, small businesses, Merrill households and commercial banking customers.

“This solid client activity across our businesses, coupled with higher interest rates, drove strong net interest income growth and allowed us to perform well in a weakened capital markets environment,” he said.