More Details On Merrill Edge's Growth Strategy Raise Plenty Of Questions

Monday, December 05, 2011 07:42
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More Details On Merrill Edge's Growth Strategy Raise Plenty Of Questions

Tags: bank of america

We now know that in the course of doubling its mass affluent "advisor" pool, Bank of America's Merrill Edge boosted its AUM by 31% over the last 18 months.

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This would be massive growth for any established advisory firm, but I suspect Merrill Edge is starting from a fairly low base.

 

 

They're still very cautious with giving an exact number for assets under management or client accounts. As a result, even this news of 31% growth is not really helpful.

 

Is it 31% growth off $100 billion? That might be impressive, but it's unlikely. But if they started from a lower level, adding 31% to that is not all that exciting.

 

With over 1,000 bank branch reps and phone center staff to back it up, Merrill Edge is already a massive investment for Bank of America. All those people need to be managing appreciable assets to make it worth the expense.

 

And the sales force doubled over the last year, so if the network now handles 31% more cash, each Merrill Edge rep is now running, on average, 35% less money than he or she used to.

 

The alternative is that all those new personnel are just sitting around waiting for the assets to roll in. 

 

That's not a great business strategy. And because they only targeted 10% annualized growth, it's going to be a long time before those personnel are handling as much client money as they were when Merrill Edge started.

 

The good news is that revenue is up 75%, so while all those new reps seem to be having trouble finding upper-middle-class dollars to capture, they're squeezing a lot more out of the assets they started with.

 

Even that's not rocket science. When Merrill Edge inherited these accounts, it was from the bank branches. Now that these clients have a dedicated investment team to sell them more products and services, they're spending a lot more.

 

I still believe there's a viable business in the "mass affluent" market under $250,000 in investable assets. But so do the banks, and this is not exactly a sign of great things emerging.

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