Coronavirus crimps Merrill’s record growth as assets tumble

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Merrill Lynch entered the first quarter having notched records for client acquisition and other key metrics in 2019. The coronavirus pandemic and accompanying economic upheaval, however, put a crimp on the firm’s growth in yet another sign of how the worldwide health crisis is disrupting wealth management operations.

Merrill Lynch advisors brought in 7,500 net new households during the first quarter, an 11% increase over 2019’s fourth quarter, according to the company’s first-quarter earnings report.

But many of those clients signed on in January and February. As the virus spread and states started imposing shelter in place orders in March, advisors’ attention turned elsewhere.

“We were running well ahead of last year’s net new household acquisition pace during the first two months of the year — at which point our advisors appropriately shifted their focus to the needs of existing clients during the final month of the quarter,” a company spokesman said.

To be sure, Merrill Lynch still put up some big numbers. The wirehouse reported record first-quarter revenue of $4.073 billion. That figure was up $90 million from last year’s $3.965 billion but just $29 million from the prior quarter.

Not surprisingly, client balances tumbled during the quarter, dropping to $2.2 trillion from $2.3 trillion for the same period a year ago. Bank of America, which owns Merrill Lynch, reported that overall client balances for its wealth management unit dropped about $400 billion from the prior quarter to land at $2.6 trillion. The unit includes several other businesses, such as Merrill Edge and a robo advisor.

Net income for the unit plunged to 17% year over year to $866 million.

The firm has had to readjust operations in the face of the pandemic. About 20,000 Merrill Lynch financial advisors and associated staff are now working remotely to avoid exposure to the virus. The firm has shifted about 700 advisor trainees to other functions to help out during the crisis (though it anticipates those trainees will resume their advisor training).

Merrill Lynch is also reducing its hiring of new financial advisors in light of the constraints imposed on in-person meetings and other standard hiring practices. In addition, the firm has experienced a big uptick in usage of digital tools on the part of advisors and clients, according to the company.

“We achieved a level of digital adoption in the past five weeks that we had hoped to achieve in the next five years,” says a Merrill Lynch executive who asked not to be named.

Nearly everything fell during the difficult first quarter: net income, advisory assets, IRA assets, and advisor headcount.
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Advisors had more than 15,000 WebEx meetings with clients in March — an increase of 10,000 from February. Three in four clients now use Merrill and Bank of America’s online or mobile platforms, the company says.

Still, the economic downturn caused by the virus has taken its toll — Bank of America said net income for wealth management fell 17% to $866 million — and will likely have an ongoing impact on Merrill’s second-quarter performance. In recognition of the headwinds for advisors, executives have eliminated some midyear performance hurdles.

Bank of America upped its provision for credit losses for its wealth unit to $189 million from $5 million for the year-ago period.

Merrill isn’t the only firm experiencing the negative effects of the pandemic. Wells Fargo reported that first-quarter net income for its wealth management business plunged 20% year over year to $463 million. Client assets dropped to $1.6 trillion from $1.9 trillion, a 12% decline from the year-ago period, according to Wells Fargo.

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Earnings Merrill Lynch Merrill Edge Bank of America Wirehouses Wirehouse advisors Client acquisition