By Corrie Driebusch
The big Wall Street brokerages like the boost in steady revenue
that comes from having more client money in fee-based accounts, but
there is an added benefit: broker productivity rises, too.
Accounts where clients pay a fixed fee based on assets, as
opposed to paying commissions for individual transactions,
typically require less of an adviser's day-to-day attention. Often,
the client assets are put in portfolios that are managed centrally
by the brokerage.
That frees the financial adviser to spend more time with current
and prospective clients, drafting financial plans for them or
otherwise building up their business.
"What we're really seeing is more productivity out of each
financial adviser, and managed account programs make that
possible," says Edward Jones analyst Shannon Stemm. "Having a lot
of accounts managed by someone at the home office can be easier
than managing a whole list of stocks day by day."
The biggest brokerages, which have spent years pushing advisers
to do more fee-based business, reported record profits in the
second quarter. Much of it resulted from the revenue their
thousands of brokers delivered.
Morgan Stanley's wealth management unit reported record levels
of fee-based assets, at $762 billion. Wells Fargo Advisors reported
a 24% rise in managed-account assets to $409 billion, driven both
by market performance and net flows.
Bank of America doesn't break down how many client assets are in
fee-based accounts at its wealth management division. It does
report asset management fees at Merrill Lynch, which rose to $1.5
billion in the quarter from $1.3 billion a year ago. The increase
is attributable both to new money put into accounts as well as the
market's rise.
Flows into long-term assets under management at Bank of
America's Global Wealth and Investment Management division, which
is mostly Merrill Lynch, were $11.9 billion. The firm said it
marked the 20th straight quarter of positive inflows.
A Merrill spokeswoman said that, as of June, 46% of Merrill
advisers had 50% or more of their client assets under a fee-based
relationship. Morgan Stanley said fee-based assets accounted for
38% of total assets--up from 35% a year ago.
The growth in fee-based assets is helping to keep profits up at
the firms as revenue from transactions declines. Wells Fargo, for
instance, said higher asset-based fees in the second quarter helped
offset lower brokerage transaction revenue.
"I think, initially, fee business might be more labor intensive
to set up and to win, but ultimately in the long-run it is more
effective to manage," says Alois Pirker, an analyst who covers the
wealth management industry for Boston-based research firm Aite
Group.
Analysts say the increase is likely a big reason average revenue
per adviser has reached such high levels at the firms. That figure
at UBS Wealth Management Americas and Merrill Lynch is now
consistently above $1 million, and Morgan Stanley's annualized
average productivity hit above $900,000 in the second quarter.
"Income from transaction business may be quicker to achieve
one-off, but you have to constantly work on that," Mr. Pirker
says.
Write to Corrie Driebusch at corrie.driebusch@wsj.com
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