Merrill Lynch's 'thundering herd' of advisers are winning over troves of new millionaires, and the growth is coming from a surprising place

  • Bank of America Merrill Lynch’s wealth management group has seen explosive client growth in the last year and a half.
  • Such growth had been tough to come by in recent years as the industry reckoned with a generational shift to passive investing.
  • Surprisingly, Merrill veterans with more than 30 years of experience were responsible for a significant share of the growth, matching the output of younger advisers who are far less established.
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The wealth management division at Bank of America Merrill Lynch had an explosive year in 2018, and 2019 is off to a torrid pace as well, adding thousands of new millionaire clients. And it’s getting help from a surprising group among their “thundering herd” of nearly 18,000 financial advisers.

At a financial conference Wednesday, Merrill Lynch Wealth Management president Andy Sieg said his division’s net new households grew by more than four-fold in 2018, a pace that has further accelerated in 2019.

While the company is spending billions upgrading technology and crafting customer friendly features, Sieg attributed much of the growth to a change within the thundering herd itself.

Surprisingly, veteran Merrill advisers were responsible for a significant share of the growth, matching the output of scrappy millennial advisers who are far less established.

“Interestingly, in 2018, the biggest increases we saw in terms of new client acquisition were financial advisers who have been with Merrill 30 years or more,” Sieg said. “They are now acquiring clients at the same pace as financial advisers who have been with us 5 years or 10 years in the business.”

Merrill added 29,000 net new households last year, up from 7,000 added in 2017. It’s on pace for 47,000 this year.Bank of America Merrill Lynch

The growth is primarily coming among the sought-after millionaire client set. The average new Merrill Lynch household has $1.4 million in assets, and the firm holds a 20% market share among clients with more than $10 million in assets — tops among competitors for ultra-high-net-worth clients, according to Sieg.

“The core of this organic growth strategy has really been to try to get the Merrill thundering herd on the move again in terms of driving client acquisition. And we’ve had some remarkable success from that perspective,” Sieg said.

Client growth helped boost profits in the bank’s global money management group to $4 billion in 2018, up 33% from 2018, on revenues of $19.5 billion.

Outside of poaching star brokers from rivals, such growth had been tough to come by in recent years as the industry reckoned with a generational shift to passive investing.

Aside from industry pressures, Sieg acknowledged his firm had “grown bureaucratized in many ways” and had erected internal barriers that stymied growth.

In part, the bank is crediting the successful turnaround to technology, asbanks are increasingly doing.

Bank of America spends $10 billion on tech annually, $3 billion of which is earmarked for developing new products.

Sieg said his division is a major beneficiary of that tech budget, and that’s helped streamline the lives of financial advisers handling all those new clients. For instance, quarterly client wealth reviews have been trimmed to less than 10 minutes from 40 minutes thanks to automation tools, and faxes and other paper documents are disappearing in favor of digital files.

“In ways big and small, we’re using technology to make the day of our financial adviser” more efficient, Sieg said.

Bank of America Merrill Lynch

But Sieg said Merrill’s financial advisers deserved much of the credit.

The strategy that helped kick advisers into recruiting overdrive — even old-school advisers — isn’t too complicated: money.

For 2018, Merrill Lynchchanged its compensation plan to incentivize growth, rewarding advisers for adding wealthy clients and new assets and penalizing advisers who didn’t.

Financial advisers are paid primarily via percentage of the commissions and fees they produce on a sliding scale from roughly 35% to 50% — the more revenue you generate for the firm the larger the cut of the profits. Brokers that exceeded client and asset growth targets could collect an additional 2% of their production, while those that failed hit minimum hurdles could lose 2%.

Sieg said the change was controversial, but he felt it was a necessity to jump-start moribund client growth in an industry watching trillions in wealth flood into index- and exchange-traded funds provided by giants like Vanguard and BlackRock as well as upstart robo-advisers like Betterment.

“If you’re an individual financial adviser and you’re looking at your own practice and business, projecting it forward 5 or 10 years, there is steady pricing compression that’s happening in the marketplace, obviously,” Sieg said. “We were reminding financial advisers, if you’re not setting out to double your asset base over a 5- or 6- or 7-year period of time, you’re not going to like what your business looks like personally in the medium and longer term.”

The results have been stark: A few years back, the average financial adviser was adding less than one net new household per year, and this year they’re averaging more than four, Sieg said.

There’s plenty of room for more growth, too. Among the so-called “mass affluent” households with $250,000 to $1 million in assets, there are 6.6 million that do business with Bank of America but don’t invest with Merrill.

“So that is an ideal target for us in terms of driving next legs of growth for the business,” Sieg said.

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