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Fee-Based Advice Fuels Bank of America’s Wealth Business

Asset-management fees more than offset lower transactional revenue.

Bank of America’s wealth management businesses posted record net income in the second quarter of 2017, in part because of its move toward fee-based advice.

The bank’s Global Wealth and Investment Management (GWIM) arm—which includes Merrill Lynch and U.S. Trust—reported net income of $804 billion in the second quarter, the most ever and up 14 percent from the same quarter last year. Revenue of $4.7 billion in the second quarter was up 6 percent compared with a year ago.

A number of factors have driven the unit’s growth this year: Higher markets (and portfolio values) mean percentage fees are translating to more income, client activity is up, and asset flows to managers are positive. The shift from IRA brokerage accounts to those under managed relationships helped—$28 billion flowed to management during the second quarter, compared with $5.9 billion in the second quarter of 2016.

During the second-quarter earnings call on Tuesday, Bank of America Chairman and CEO Brian Moynihan said consumers and investors are “very bullish on America right now,” which is driving investments in equities and risk taking.

He also said the bank is continuing to invest in people, technology and the customer experiences associated with the GWIM businesses.

The number of financial advisors in the unit increased 1 percent, even though Merrill Lynch announced in May plans to dial back outsized recruitment bonuses to draw experienced advisors to the broker/dealer.

One analyst asked if GWIM was “back into a hiring phase,” which Moynihan rebuffed. Merrill Lynch, which reported having 14,811 advisors in the second quarter, has grown its network for 14 consecutive quarters, and Moynihan said he “expects that number to continue to grow.”

In addition to growing income, revenue and advisor headcount, productivity per advisor was also up in the second quarter at Merrill Lynch, from $1.28 million per experienced advisor to $1.35 million. Total FA productivity inched up to $1.04 million after just breaching $1 million last quarter.

At U.S. Trust, second-quarter revenue reached $819 million, the highest since 2009.

Referrals to and from GWIM and other business lines of Bank of America also increased 18 percent in the first half of 2017, compared with the first half of 2016.

Outside of the wealth management businesses, the second-largest U.S. lender by assets reported a higher-than-expected quarterly profit on Tuesday. Revenue rose in three of its main businesses, offsetting a fall in trading.

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