When I say that investors should love Bank of America (NYSE:BAC), I'm not talking about people who own its stock -- though, as a shareholder myself, I'm bullish on its prospects. I'm talking instead about customers of the bank who use its services to invest their own money.
Every big bank offers customers a way to invest their savings, and specifically the funds in their retirement accounts. The difference with Bank of America is that its product lineup is designed to satisfy investors of all stripes.
Its subsidiary U.S. Trust caters to very wealthy customers. Its division Merrill Lynch directs its full-service brokerage and investing products to serve customers with at least $250,000 in investable assets. And its Merrill Edge platform offers discount brokerage services to customers with between $100,000 and $250,000 in investable assets.
This product lineup isn't necessarily unique. JPMorgan Chase (NYSE:JPM) also offers brokerage services and retirement accounts to individuals, as does Wells Fargo (NYSE:WFC). But the difference is that Bank of America's Merrill Edge platform can be used for free by qualifying customers.
If you maintain an average cash balance across all of your Bank of America accounts of at least $50,000, you're entitled to 30 free trades a month in your Merrill Edge account. And if you maintain an average cash balance of more than $100,000, you get 100 free trades a month.
This doesn't seem like a big deal until you compare Bank of America to JPMorgan Chase and Wells Fargo, neither of which provides a way for even affluent customers to avoid trading commissions in self-directed retirement accounts.
JPMorgan Chase doesn't even offer self-directed retirement accounts; its retirement account options are designed for people who don't want to actively manage their own money. As a result, if you have your IRA with JPMorgan Chase, the only economical way to invest it is to allow the bank to do it for you. One of the bank's advisors told me that making your own trades will cost you $26 each time you buy or sell a stock.
Wells Fargo, on the other hand, does provide self-directed brokerage services to individual investors. But the difference between its offerings and Bank of America's is that Wells Fargo won't waive your trading commissions, regardless of how much money you have on deposit at the California-based bank. It doesn't matter if you have $1 on deposit at Wells Fargo or $1 million on deposit: you still have to pay $6.95 per trade.
In this way, Bank of America's Merrill Edge platform offers a competitive advantage that the bank can use to attract the type of customers banks want -- i.e., those with sizable and growing deposit accounts. This helps explain both why its Merrill Edge platform has grown by 62% since 2012, and why Bank of America has the leading deposit franchise in the United States.