Merrill’s Sieg: Net Income to Fall 30% in 2020
Net income at Bank of America’s Merrill Lynch Wealth Management unit will fall about 30% this year from 2019, a top executive told the firm’s advisors as he presented their compensation plan to them earlier this month.
Sieg attributed the profit decline and compensation rigor to the “significant impact” of rock-bottom interest rates that have slammed net interest margins at financial institutions large and small, including at Bank of America Merrill’s parent company. The Federal Reserve Board on Wednesday said it expects to keep short-term rates near zero through 2021 in its effort to stimulate the economy amid the coronavirus crisis.
A spokesman for Merrill declined to confirm or deny that Sieg made the remarks in his talk to the bank’s “Thundering Herd” of more than 13,000 advisors on the December 3 compensation call.
Merrill’s 2021 compensation plan also eliminates broker payout on client accounts under $250,000 as the firm steers less affluent customers to other Bank of America investment units such as Merrill Edge with less highly compensated advisers and to automated investment programs.
Merrill Lynch Wealth Management generates about 80% of the revenue and the lion’s share of profit within Bank of America’s “global wealth and investment division,” which also includes about 1,900 private bank advisors at the unit formerly known as U.S. Trust. The division in 2019 recorded net income of $4.25 billion, up 6.6% from the previous year.
In this year’s third quarter, the Global Wealth division accounted for 15% of Bank of America’s $4.88 billion in net income, but the profit was down 32% to $749 million from $1.1 billion in the comparable 2019 quarter. Merrill Lynch Wealth Management expenses rose 3% to $3.5 billion in the period on “higher revenue-related incentives” for advisors and on spending on new digital projects, according to the quarterly earnings report.
Bank-owned wealth management “wirehouses” continue to incentivize advisors to sell bank loans and mortgages to their wealthy investment clients, and to encourage them to open deposit accounts. But profit from those activities have lagged industrywide because of rate pressure.
Net income at Morgan Stanley Wealth Management fell 10% in the third quarter, while Wells Fargo & Co.’s wealth and asset management division recorded a 64% year-over-year quarterly decline. UBS Wealth Management’s U.S. business, whose brokerage force of about 6,000 is less than half the size of its wirehouse competitors, was an exception as third-quarter pretax profit rose 12% amid a long-running expense control program.