Skip navigation

Tiptoeing Into Retail Brokerage

You might think that Bank of America, the nation's largest consumer bank, could pose a formidable threat to Wall Street's retail brokerage powerhouses. After all, it has a veritable army of affluent clients to whom it could offer financial advice. But the consumer banking giant is building out its tiny retail brokerage operation at a snail's pace. Management emphasizes that it's more interested in

You might think that Bank of America, the nation's largest consumer bank, could pose a formidable threat to Wall Street's retail brokerage powerhouses.

After all, it has a veritable army of affluent clients to whom it could offer financial advice. But the consumer banking giant is building out its tiny retail brokerage operation at a snail's pace. Management emphasizes that it's more interested in quality than in quantity — that old familiar trade-off. In the meantime, on the brokerage side, it trails far behind the Wall Street bigs by most quantitative measures: number of advisors, advisor productivity and client assets.

“Given that they want to be number one in so many businesses, why are they content to have such a small retail sales force?” asks Ladenburg Thalmann Brokerage analyst Dick Bove. In 2004, Bank of America swallowed discount brokerage Quick & Reilly, and its 1,000 retail financial advisors, through its acquisition of Fleet Bank, bringing its total advisor force up to 1,800. Then in 2006, the bank scooped up high-end trust operation U.S. Trust. It has since turned its focus inward, and is working to expand the retail brokerage operation — called Banc of America Investment Services (BAI) — organically, allowing financial advisors to tap into its vast and built-in retail customer base and branch network and luring new advisors to the firm with the prospect of client referrals from the bank. After all, the bank's retail customers number 16 million affluent households, its branch network is 6,100 offices strong and it has net client assets of $867 billion.

“We feel right now that we have enough room and enough clients to grow organically,” says Dean Athanasia, president of Bank of America's Premier Banking & Investments division (PB&I), which includes BAI, and caters to clients with $100,000 to $3 million in investable assets. It would be far harder, for example, to outright buy a 5,000-person retail brokerage shop that would fit into the bank's current model, he says. (There aren't that many big independently run retail brokerage shops left, in any case.)

Can organic growth cut it in this market, with so many firms going after the same advisor talent and the same wealthy clients? That depends on who you ask. Guy Manuel, managing director and founding partner of the CBM Group, a financial services consulting firm in New York, says the bank is pursuing the right path because the process of digesting an acquired brokerage might simply distract from the bank's ability to harness its large retail customer base for the benefit of its financial advisor sales force. But Bove thinks Bank of America's lack of interest in acquisitions thus far may indicate that the firm doesn't really want to be a substantial player in the retail brokerage business. “When [CEO] Ken Lewis lists the businesses that he doesn't seem to like, it's anything in the capital markets arena — including brokers. What he does like is product,” Bove says. “If they wanted to have another couple thousand brokers, they would have them by now.” The firm says it has hired 200 financial advisors so far this year, but otherwise, the size of the firm's advisor force has been pretty stagnant. The rest of the roughly 2,000 financial advisors working at the firm today are mostly legacy BAI and Quick & Reilly legacy advisors.

Ultimately, the bank may be more interested in the high-end private client business than in retail brokerage, says Chip Roame, managing principal at Tiburon Strategic Advisors. “Unlike Wachovia for instance, I think Bank of America has bet more on the private banking model. While Wachovia was acquiring Prudential Securities and A.G. Edwards, Bank of America acquired U.S. Trust,” he says. “That seems to signal that their strategy is bank-based more than broker-based.” Still, Roame says he doesn't rule out an acquisition if something attractive were to pop up. “I still think Bank of America could jump in and buy a big brokerage firm if one goes up for sale,” says Roame. “If UBS or Morgan Stanley sells off its retail brokers, I'd assume Bank of America would be a bidder.”


In the meantime, the bank is focused on integrating the retail brokerage with its mass-affluent credit and lending services division, both of which fall under the PB&I umbrella. Back in 2005, Bank of America set up a referral program and partnerships between the bank's financial advisors and its 2,500 Premier Banking “client managers,” who handle clients' lending and credit needs. It has also set up 100 PB&I “wealth centers” around the country where clients can meet exclusively with client managers and financial advisors in joint meetings.

So far, the measures have paid off, says Athanasia. Indeed, client managers made more than 100,000 referrals to financial advisors in 2007, up at least 20 percent from the previous year, he says. And the number of banking client households that also have brokerage relationships has been rising. In 2007, 288,000 households (just 2 percent of the bank's total client households, but around one third of its PB&I banking clients) also had a brokerage relationship with the bank; that's up from 223,000 in 2005.

You might not call that booming growth, but it all adds up to improved performance. The firm does not break out profits for the retail brokerage, but in the second quarter BAI reeled in $280 million in revenues, up 10 percent versus the prior year. And for 2007, the unit's revenues totaled slightly more than $1 billion, a 22-percent increase versus 2006. Meanwhile, the entire Premier Banking and Investment division generated after-tax profits of $189 million in the second quarter, down 43 percent from 2007, in part due to losses on home equity loans. Net revenue for the division hit $865 million and client assets totaled $123 billion, up from $98 billion in the year-earlier period.

BAI's revenue stream is pretty reliable: About 35 percent of total revenue is fee-based, and more than 50 percent of total revenue is recurring, says Mark Benson, president of BAI. Meanwhile, annualized revenue per advisor averaged $528,000 in the second quarter, up from $460,000 in 2007 and $280,000 in 2004.

Of course, by the above measure, Bank of America still lags far behind its Wall Street peers: Average advisor productivity at the major Wall Street wirehouses hovers between $600,000 and $800,000. (Bank of America explains that its numbers reflect the lower productivity of trainees, and don't include banking and lending revenues.)


As for Bank of America's financial advisor headcount, the firm says it's moving forward aggressively on this point, as demonstrated by this year's hires.

“As the business evolves and we serve more and more [affluent] clients, we're going to need more and more top advisors from the industry to serve those clients,” says Benson. Bank of America is not in the big leagues when it comes to recruiting top talent: They're not out there paying gigantic upfront bonuses to heavy-hitters like the Wall Street firms. Instead, they're choosing to focus on lower-tier financial advisors who have three to five years of experience and at least $250,000 to $400,000 in production. “We know we can bring those types of people in and [they can] be very successful in our model,” Athanasia says.

Mindy Diamond, president of Diamond Consultants in Chester, N.J., says she thinks the prospect of bank referrals might be very attractive to these kinds of advisors, who aren't being heavily recruited by the major wirehouse firms anyway. “When it works the way it's supposed to work, it's a great model,” she says.

Of course, there are kinks, Diamond says. Conversations with Bank of America advisors seem to indicate that the model has worked better in some markets than in others. Some recruits, for example, come in with unrealistic expectations about referrals and are disappointed, she says. Others have bad experiences with their client managers.

But some advisors love the setup. Mike Shearer, a financial advisor with BAI Services in Dallas, for example, has a great relationship with his client manager, with whom he's been working for several years now. They meet weekly, discuss their client rosters and freely pass referrals back and forth. Though he doesn't get a referral fee for doing so, the incentive for him is to help his partner be successful, so she'll in turn give him more business. “It can't be a one-way street,” he says.

To be sure, having a good relationship with your client manager often comes down to personality, and executives say they try their best to make appropriate matches. And while there are some failures, there are many success stories, they say. “You can advance much more quickly in this model,” says Athanasia, noting the jumps in advisor production over the past several years.


As for U.S. Trust, it typically serves clients with $3 million of investable assets and up, which is generally out of the retail brokerage's range. But Athanasia says there is some overlap. The bank's acquisition of U.S. Trust has helped the brokerage's growth prospects, he says, because of the promise of high-end products and services, like philanthropic management and alternative investments, for the wealthiest brokerage clients. (U.S. Trust was folded into Bank of America's existing private bank last year, which, together with PB&I and the bank's proprietary investment management arm, Columbia Investment Management, is part of the bank's Global Wealth and Investment Management division.)

“If a PB&I client manager or financial advisor recognizes a client need for more complex services, there is an automatic assumption that U.S. Trust partners will be called in,” he says. “While advisor-client relationships are definitely respected, in the end, our team regards all work with clients as Bank of America relationships.”

At the other end of the spectrum, Bank of America also offers an online brokerage for do-it-yourselfers, inherited through the purchase of Fleet Bank. Still, the full-service model is where executives really see the growth opportunities. “It's a very attractive model. People want to work here because of the clients we have,” Athanasia says.

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.