Bank of America said it plans to invest its wealth management business and add more financial advisors in 2012.
The plan comes after Bank of America added 1,697 financial advisors in 2011. Even as the company sets out on a second round of cost-cutting as part of its Project New BAC, CEO Brian Moynihan told financial analysts late last week that the company considers wealth management one of its core businesses – and will increase efforts to build it up.
That business primarily consists of Merrill Lynch Global Wealth Management, but also includes its U.S. Trust and its Retirement Services practices.
“We set goals to reduce our non-core assets. We set goals to bring our credit risk down and to address the mortgage risk related to the Countrywide acquisition,’’ Moynihan said on a conference call after the announcement Thursday of its fourth quarter earnings.
“At the same time, we also set goals to continue to invest in areas where our company can grow and has its competitive advantage. Areas like our wealth management area,’’ he said.
Earnings for its global wealth and investment management business were down 22% in the fourth quarter, at $249 million. Moynihan attributed this to lower market activity. And “expenses were higher due to a few noisy items,’’ he said, “including higher FDIC and litigation expenses, as well as other related losses and some severance costs.’’
The company added 214 financial advisors in the final quarter of 2011, ending the year at 17,308, according to supplemental information filed by the company with the SEC. That was up 10.8% from 15,611 at the start of the year.
Total wealth advisors reached 18,667, up 9.5% from 17,041, during the year.
“As we look forward, we would expect unit advisor growth in 2012 based on economic conditions, as well as absorbing the financial advisor growth from 2011,’’ he said.
His comments came at the same time he was telling employees that the company would be instituting a round of $3 billion of cost cuts, as reported by Bloomberg.
As Bank of America noted in its earnings announcement, “aligning” costs with revenues is a prime objective.
At the center of the company's pursuit of operational excellence is Project New BAC, a comprehensive two-phase initiative designed to simplify and streamline the company, align expenses and increase revenues. Phase 1 evaluations were completed in the third quarter of 2011. Phase 2 evaluations, which began in the fourth quarter of 2011, are expected to continue into early 2012 and cover the balance of businesses and operations that were not evaluated in Phase 1.
That means paring expenses at wealth management. That business saw its pre-tax margin decline to 9.5% in the fourth quarter, from 13% in the third and 12.4% in the same period a year earlier.
Client balances picked up 3.5% from the third quarter, reaching $2.1 trillion. But that was down from $2.2 billion a year earlier.
The global wealth and investment management business had $249 million in net income for the fourth quarter, down from $319 million for the same quarter in 2010. That business posted about $1.64 billion in net income for the year ending Dec. 31, 2011, up from $1.34 billion in the previous year.
Those results came as that division’s total revenue for the fourth quarter, net of interest expense on a fully taxable equivalent basis, stayed flat about $4.16 billion for the fourth quarter. Total revenue for the year was about $17.38 billion, up from $16.29 billion in 2010.
Tom Steinert-Threlkeld writes for Securities Technology Monitor.