Due Diligence

BofA Wealth Management Income Down, Assets Flat, FA Hiring to Slow in 2012

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merrill-lynch-bullBank of America’s global wealth and investment management division reported net income of $249 million in the fourth quarter, down 22 percent versus the year-ago quarter. Earnings were down on lower market levels and trading activity and higher expenses, included litigation expenses and severance costs, said executives on the conference call. Pre-tax margins for the group slid to 9.5 percent from 12 percent a year ago and 13 percent in the third quarter.

Client balances were up 2 percent versus the year ago quarter to $2.14 trillion, but Merrill Lynch client balances slipped about 1 percent to $1.5 trillion. Assets under management were flat at $647 billion at quarter-end, as were client brokerage assets at $1.02 trillion. Assets in custody slipped 6 percent to around $108 billion.

The firm hired 214 financial advisors during the last three months of the year, bringing total FAs to over 17,300 at year-end, a total that includes trainees, which number in the thousands, according to spokeswoman Selena Morris. The bank expects “muted advisor growth in 2012 based on economic conditions and absorbing FA growth in 2011,” said chief financial officer Bruce Thompson.

On average, the firm’s advisors generated $873,000 in annualized revenues, but when you exclude trainees this number is much higher at $1.1 million, a 12 percent increase versus the prior year. Trainees generated, on average, $819,000 in annualized revenue. “We expect over the long term the overall productivity numbers will go higher,” said Morris.

Phase two of the firm’s cost-cutting program, which will apply to certain divisions including wealth management, began in the fourth quarter and should be completed in April, said Thompson. That cost-cutting effort will result in $5 billion in cost savings, or 18 percent of expenses across the selected business divisions. The bank expects lower cost savings in phase two versus phase one because the businesses more efficient already and have lower headcount.

Brian Moynihan, Bank of America CEO, said the bank has been executing on a huge transformation over the last two years, including efforts to reduce non-core assets and credit risk and invest in areas where the firm has a competitive advantage, like the wealth management business. For 2012, Bank of America will focus on its retail strategy as it cuts costs, he said. The bank will need to carefully balance the need for cost-cutting against a need to serve bank clients well.

Bank of America hired over 500 locally-based small-business bankers to provide financial advice to our customers in 2011, said Thompson. It was not clear whether these bankers would end up competing with the firm’s financial advisors for business.

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