IBD Execs Open Up About Industry Shifts

Wirehouse Updates

Merrill Lynch and Morgan Stanley reported their latest advisor tallies, profits, fee-based assets and more for the fourth quarter and full-year 2017. Bank of America Merrill Lynch and Morgan Stanley don't share the exact same figures, but there's much to be gleaned from their latest quarterly earnings results.

Morgan Stanley advisors have about $2.37 trillion in client assets — up 13% in Q4'17 from a year ago vs. $2.31 trillion at Merrill Lynch, which had a 10% year-over-year jump in assets. But when assets at U.S. Trust are combined with those of Merrill, the Bank of America Global Wealth & Investment Management group, the unit has some $2.75 trillion (which also represents a 10% jump from the year-ago quarter).

Morgan Stanley has 15,712 advisors vs. 14,953 at Merrill Lynch. If Merrill's consumer banking/Merrill Edge advisors — which number 2,402 — are included, its ranks swell to 17,355. It also has 1,714 US Trust registered reps.

Merrill says its advisor force grew by 231 from a year ago, while its Thundering Herd decreased by one from the third quarter. Morgan Stanley, though, says its headcount fell 51 from the prior year and 47 from the earlier quarter.

Morgan Stanley's advisors have 12-month trailing production of $1.12 million as of Dec. 31 vs. $1 million for Merrill's Thundering Herd. But Merrill also shares the performance of its veteran advisors (which excludes the production of the roughly 3,000 reps in its training program): $1.31 million in Q4'17. Morgan Stanley says the average level of assets per advisor is $151 million. Merrill doesn't provide that figure.

Wells Fargo's Latest

Outgoing Federal Reserve Board Chair Janet Yellen announced in early February that Wells Fargo is banned from growing until it shows that it has resolved certain shortcomings. According to Wells Fargo, this could cost it as much as $400 million in profits this year.

"While operating under this constraint, we are open for business, and we will continue to serve our customers' financial needs, including saving, borrowing and investing," said CEO and President Tim Sloan in a statement on Friday.

According to the bank, the cap impacts assets on Wells Fargo's balance sheet and not assets in brokerage or related accounts held by clients of its 14,500 advisors. But how willing will wealth management clients be to give advisors new money or become new clients in general?

"They are making a series of statements, and their efforts to change are sincere," said recruiter Danny Sarch of Leitner Sarch consultants. "But department by department by department, they are showing that they do not care to put the client first — from mortgages to car loans to bank loans."

While Wells Fargo Advisors has not been found guilty of any misbehavior by authorities or regulators, clients of the unit have watched the scandals unfold on the banking side. "To think that referrals within the bank, i.e., cross-selling, are as robust as they were before all this [news] broke is naïve in my view," Sarch explained.

For an advisor who is in the process or considering moving to WFA, "How can you explain that this benefits the client, and how can you make that argument? It's tougher than ever right now," the recruiter said. For existing advisors working to add assets from current clients and prospects, Wells Fargo is, once again, dealing with "headline risk."

Bank analyst Richard Bove of Vertical Group says Wells Fargo has not increased its assets substantially over the past six quarters and hence the decree should have a very limited impact. As for wealth management, the business is changing for Wells Fargo and its competitors as cheap ETFs dominate the field. "It means you have to sell mortgages, make loans and the like," he said. That broader trend, and not the decree, will impact the unit's performance.

Keefe, Bruyette & Woods analyst Brian Kleinhanzl has a mixed view. "We are not expecting another shoe to drop from a regulatory perspective, but there is increased uncertainty about when the [order] will be resolved."