Unlike other acquisitions Bank of America (NYSE:BAC) has made over the years, its wealth-oriented Merrill Lynch division has been a real keeper. The unit generated a pre-tax profit margin of 27.6% in the second quarter, and B of A's CFO has predicted that 30% is not far off. Revenue from the global wealth section topped $4.5 billion last quarter.
New fee schedule has advisors in a huff
Despite these brilliant numbers, brokers are stamping their feet over a new Bank of America initiative that will hike wealth-management fees for certain customers, according to The Wall Street Journal. BAML advisors are upset because the new paradigm will take away the freedom they presently possess regarding setting prices, which allows them to reward their best customers. More pointedly, however, they fear the new fee schedule -- which could increase some clients' costs by 50% -- will scare customers away altogether.
This isn't the first time Bank of America has angered its herd. As CEO Brian Moynihan pushes the cross-selling model, brokers have been grousing loudly. This past spring, many advisors complained that sending their clients over to the B of A side for products like credit cards and mortgages subjected them to the bank's famous crummy customer service.
A valid point, but they are apparently on task: Broker referrals increased 144% over last year, and referrals to BAML from the retail side jumped 69%.
Kid gloves may be in order
B of A Merrill brokers seem to be an especially cranky lot. Bank of America acquired the brokerage in 2008, and the next couple of years saw many leave, unable to accept the transition and finding the whole idea of account management fees particularly distasteful. When, back in 2011, management began suggesting the whole cross-selling concept, bellyaching ensued. It's obvious, though, that the program is working.
Interestingly, the change-up in BAML's managed account business isn't the problem. In fact, the new model joins together formerly disparate platforms, which should actually make things easier for advisors. The part the brokers resist is the new, sometimes overwhelming fee schedule.
Should B of A listen to its brokers' current concerns? I think it would be in the big bank's interest to do so. The brokers have a legitimate gripe, and it is their hard work that has put Merrill ahead of firms like Morgan Stanley (NYSE:MS), which aspires to a much lower 20% profit margin for its own wealth unit -- and has been having trouble attaining it.
Likewise, Bank of America could certainly make some positive changes to its terrible customer service -- which it should do anyway -- thereby alleviating some of the angst its Merrill advisors feel about sending wealth clients over to the retail side.
There's no doubt B of A wants to make this work. It is expanding BAML's reach, recently adding an expert team of cross-sellers from Wells Fargo (NYSE:WFC) to its offices in Wisconsin. Wells, of course, has a stellar reputation for being tops in cross-selling, so B of A has certainly gone to the right source to learn the ropes.
As they say, you get more bees with honey than with vinegar. That's a lesson Bank of America needs to learn on many levels, and it would be smart to start practicing with its own profit-generating wealth-advisement team.