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Merrill Lynch's Brokerage Defections Continue

Merrill Lynch Wealth Management's main brokerage force shrank by 75 financial advisers in the third quarter, a sign the company continues to struggle in its industry's war for talent.

Merrill Lynch Wealth Management's main brokerage force shrank by 75 financial advisers in the third quarter, a sign the company continues to struggle in its industry's war for talent.

The brokerage still boasts one of the biggest adviser forces in the U.S. at 16,076 but it was the third straight quarter of headcount declines for Merrill, part of Bank of America Corp, which reported its quarterly results Wednesday.

Defections of top advisers appeared to impact average adviser productivity - the amount of revenue advisers bring into the firm - a closely watched figure in the industry. When top advisers leaves, many of their clients - and their money - often go with them.

Merrill weighed heavily on its parent bank's earnings. The bank last month agreed to pay $2.4 billion to settle claims that it hid crucial information from shareholders when it bought Merrill during the financial crisis.

The brokerage also faces claims from upwards of 3,000 former advisers who say they were wrongly denied deferred compensation when they left after Bank of America bought Merrill. In a recent arbitration case, the firm estimated its exposure to be anywhere from several hundred million dollars to over $1 billion.

Although about 1,400 lower-producing brokers are expected to sign on to a pending $40 million class action settlement, industry lawyers expect many highly paid ex-brokers to go it alone to secure higher payouts. In one recent case, two former Merrill brokers in Florida were awarded $10.2 million by a Financial Industry Regulatory Authority arbitration panel. A federal court upheld the award, despite Merrill's efforts to have it overturned.

Bank of America's broader global wealth and investment management division, which includes Merrill Lynch Wealth Management and private banking unit U.S. Trust, posted inflows of $5.7 billion in long-term assets under management. These are assets that have an investment strategy of longer than a year, like fee-based or managed accounts.

These inflows are an encouraging sign for Merrill because these are the kind of assets that make clients stickier to the company, said Alois Pirker, a wealth management industry analyst for the Boston-based research firm Aite Group.

"We want to see people who invest with a long-term horizon at your firm," he said. "Those are assets you can count on."

Overall Pirker called the earnings a mixed report for Merrill. He said he is waiting to see if company's main rival, Morgan Stanley Wealth Management, experienced issues in the third quarter, which would indicate whether or not Merrill was caught up in industry trends. Morgan Stanley is scheduled to release its third-quarter results on Thursday.

HEADCOUNT FIGURES

So far this year, Merrill Lynch has lost at least 150 veteran advisers who managed more than $24 billion in client assets, according to adviser moves tracked by Reuters. In the third quarter, Merrill lost 31 veteran advisers who managed $2.415 billion in client assets, according to Reuters data.

Reuters tracks the movement of individual advisers and teams managing about $100 million or more in client assets, which typically translates to $1 million or more in annual production.

Merrill's adviser defections in the third quarter weighed on its annualized productivity per adviser, which fell to $910,000 from $915,000 in the second quarter.

That production figure was probably also weighed down by rookies in Merrill's training program, who have to build up a book of business from scratch. The brokerage has said it is on track to hire up to 2,500 new advisers this year, even as other Wall Street firms are trimming their training programs.

A small pool of brokers bring in an outsized proportion of revenue at brokerage firms. In 2011 nearly 46 percent of the revenue in Merrill's Global Wealth Management unit, for example, came from just 21 percent of its top-producing brokers - about 2,500 people - a May Reuters analysis found.

Overall, though, including associates in Merrill Edge, a consumer bank program that targets clients with less than $250,000 to invest, headcount in the third quarter fell by just one adviser, to 17,533. Assets in Merrill Edge rose 5 percent from the second quarter to $75.9 billion.

Industry recruiters have said Merrill could benefit later this year by picking up top producers leaving Morgan Stanley, which has been beset by widespread frustrations over technology.

A Merrill Lynch spokeswoman told Reuters on Wednesday that the firm is being highly selective in recruiting and hiring.

STRONG MARKETS, INFLOWS

Strong markets helped Merrill post a 3.4 percent increase in the amount of money it is managing for clients, to $1.86 trillion, in the third quarter.

The Dow Jones Industrial Average is up 11 percent year-to-date, while the S&P 500 has climbed about 16 percent.

Bank of America's broader wealth division posted a 3 percent increase in client balances to $2.26 trillion, a gain the company tied primarily to market gains but also to improvements in deposit balances, inflows of long-term assets under management and loan balances.

The division's net income fell 1 percent from the second quarter to $542 billion but was up 50 percent from a year earlier as revenue increased on higher net interest income.

Copyright 2010 by Reuters. All rights reserved.

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