NEW YORK, April 16 (Reuters) - Bank of America's wealth management businesses slowed in the first quarter, with profit at its Merrill Lynch brokerage and U.S. Trust private banking units slipping 6.5 percent to $729 million from $777 million in the last quarter of 2013.
The return on the $12 billion of capital allocated to the wealth businesses fell to 24.7 percent from 29.4 percent in the 2013 first quarter and 31 percent from the fourth quarter.
The returns, however, are still far higher than those in Bank of America's riskier trading and investment banking businesses, which have been hemmed in by new regulations designed to prevent another financial crisis. That explains why big banks continue to invest in businesses aimed at rich families and individuals.
The results Bank of America reported on Wednesday track an industrywide trend in which banks are countering client caution about markets by nudging them from commission-based trading accounts to fee-based accounts tied to growth of their assets. They also are urging them to buy loans and other bank products.
Merrill Lynch said that for at least the second straight quarter, revenue from wealthy and "ultra-high-net-worth" clients in its core wealth management businesses was split almost equally among fees, trading commissions and interest income from loans and deposits. Measured by another metric, 45 percent of Merrill's almost 14,000 brokers have more than half of their clients in at least one fee-based relationship.
The trend is part of a cultural shift in which big brokerage firms are encouraging brokers to talk less about individual stocks, bonds and funds and more about helping clients meet long-term goals such as saving for children's college, healthcare and retirement. This allows banks to book more stable income that is less subject to the whims of investor trading appetites.
Wells Fargo & Co, whose U.S. brokerage unit has the second largest number of financial advisers, last week reported a 41 percent jump in first-quarter profit in its wealth business on a big jump in fees. But the $475 million of profits trailed those at Bank of America's wealth business.
The banks also are encouraging brokers to sell loans and other bank products and to work in teams, in hopes of locking clients into relationships that will outlast the retirement of brokers whose average age is in the mid- to late-50s.
Wells said its wealth management clients average more than 10 product relations with the bank. Merrill said referrals within Bank of America to and from wealth management have grown by 30 percent since a year ago.
While profitability at Merrill and U.S. Trust slowed, revenue rose 3 percent from a year ago and 2.9 percent from the fourth quarter to a record $4.5 billion, pumped by $2 billion of asset management fees. In the fourth quarter, revenue soared 10.4 percent over the year-ago period.
Balances in clients' brokerage, advisory, lending and deposit accounts rose 7 percent from a year ago and 1 percent from the fourth quarter to $244 billion.
Wealth is the smallest contributor to Bank of America's profit, excluding its residential mortgage business whose legal problems caused an overall first-quarter loss. Wealth's $729 million of first-quarter profit trailed the more than $1 billion earned by each of Bank of America's consumer banking, trading and investment banking businesses.
Merrill Lynch, which once had the most brokers in the world, continues to trim its staff. Its broker force fell by 749 financial advisers in the past year to 13,725 as of March 31. Most of the 47 who left in the past three months were poorly performing brokers in its training program, the company said.
Merrill, which plans an enhanced college-level intern program this years, said its average broker last quarter brought in $1.06 million in fees and commissions. That exceeds the $1 million benchmark for a top-producing broker in the U.S. securities industry.
For the second straight quarter, Merrill also said the number of its most successful brokers who left for other jobs during the quarter is at historically low levels.
(Reporting by Jed Horowitz; Editing by Richard Chang)