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One year on: what’s happening with Merrill Lynch’s international wealth business?

One year on: what’s happening with Merrill Lynch’s international wealth business?
 

*Corrections were made to this article with regards to the volume of assets under management in Merrill Lynch Wealth Management’s international business.

Merrill Lynch Wealth Management’s international business could be losing more assets than expected as a result of the significant cuts to its services first announced last year.

Last July, the Bank of America-owned global wealth manager restructured its overseas unit, with the expectation that it would lose around 10% [around $7.2 billion] of the approximately $72 billion of assets under management it had at the time, according to sources close to the situation.

This restructure saw it increase investment minimums across its accounts and zone in on the ultra-wealthy in a trimmed down list of 29 designated countries, with a focus on Canada and Latin America.

Over the last 12 months, Citywire Americas has reported on 16 teams departing the firm [see table below] which managed more than $8.16 billion in client assets while at Merrill Lynch.

While its international advisory assets are only a proportion of the $2.4 trillion it runs in US domestic accounts, the possible withdrawal of $8 billion in client assets since November, when the first departure was reported, raises questions on whether there are more exits to follow.  

The firm has not published any new numbers or announced advisor recruits, but sources revealed the unit now has between $65 billion to $60 billion in assets. The amount invested in mutual funds has reduced from about $12 billion to $10 billion in assets.

Merrill Lynch has declined to comment to Citywire Americas on how many assets it has lost, or acquired, since its restructure announcement and it seems unlikely to issue a statement until December or early 2017 - the final deadline by which any Merrill Lynch accounts outside the designated 29 countries must be closed.

 The departed:

NamesAUM (in millions)Date movedMoved to
Lorenzo Esteva and Alejandro Malbran$275Nov-15UBS
Graciela and Jorge Perez$270Nov-15Bolton
Michael Wu$355Nov-15Morgan Stanley
Rick Leyva$200Dec-15Snowden
California advisors$4,000Early 2015UBS
Eugenio Arango$400Jan-16Raymond James
Miguel Sosa$400Jan-16GIS
Eduardo Robson, Daniel Aymerich$180Feb-16Bolton
Michael Sauerborn$325Mar-16Raymond James
Eric Beiley$570Apr-16Raymond James
Edilberto Moreno and Soraya Batista Garcia$160May-16Bolton
Alvaro Uribe and Andres Echeverri$170May-16Morgan Stanley
Sam Moshe$290May-16Morgan Stanley
Alex Astudillo$173May-16Bolton
Felipe Ballestas$175Jun-16Bolton
Tanya Duarte and Archibaldo Vasquez$225Jun-16Bolton

Battle of the client books

While the teams exited have the opportunity to take their client assets with them it’s really down to where the clients want to be serviced, so will there be $8 billion or more exiting Merrill’s coffers?

Cerulli Associates published data in March showing that firms typically keep 23% of assets when advisors move away from one firm to the other. However this data might not extend to international clients.

EY recently looked at trends in client retention and according to EY’s wealth management director Juan Carlos Lopez, the main drivers for Latin American clients when choosing their advisors is trust followed by the firm’s reputation.

‘In Latin America we saw the relationship with the advisor and establishing trust is more relevant than for North American clients,’ he said. ‘Second, its firm reputation…clients will stay with advisors as long as the advisor moves to another strong brand, a firm with a good reputation.’

The view of a former Merrill veteran, who spoke to Citywire Americas on the condition of anonymity, seems to support this idea as he expects to keep almost two thirds of his clients after exiting earlier this year.

‘The support and commitment I’ve seen from the clients to come with me has been very strong. As of right now I have brought over about one third of what I was managing with a pipeline that would get me to easily 50% to 65% of what I was managing.’

Going indie

The pool of wirehouses and international banks has been shrinking over the last few years with Barclays, RBC and Credit Suisse having left the scene. Even wealth management giants like Morgan Stanley have had to run with the times and make changes to serve higher net worth clients.

This has allowed international broker-dealers and RIAs such as Bolton Global Capital, Snowden Financial Partners and Global Investor Services to earn a bigger slice of international advisory pie.

The challenge for these firms, Lopez said, lies in proving their strong credentials and reputation to these prospective clients.

Bolton’s chief executive Ray Grenier, however, is confident that the six teams his firm has recruited so far from Merrill Lynch will be successful in bringing over the bulk of their client assets.

He said that the firm has typically found 60% of assets move in first six months, 80% within nine months and 90% within 12 months. The total amount of client assets Bolton stands to gain adds up to over $1.4 billion to date, said Grenier.

Big brand name is no longer synonymous with a good reputation, he added.

‘The capabilities of the independent side now match or exceed those of the major firms or wirehouses. In terms of clearing and custody, financial safety and security, and technology what independent firms offer is good, if not better.’

Grenier said: ‘Brand names meant something, but since 2008 these names have been tarnished and don’t have the same cache for clients as they used to and clients are much more willing to entertain these types of relationships.’  

Will they exit the international space?

Merrill Lynch has been very clear that the growing burden of compliance and managing risk were the key reasons behind the global services revamp.

It is also understood Merrill has been actively recruiting to help deliver its more streamlined, consistent client proposition with a specific focus on eight target regions. Clients in 21 other countries must meet a $5 million account threshold. 

The message from Bank of America Merrill Lynch's legal counsel Andrew Aspen at an industry event in May was that ultimately the focus was on the broader business.

‘No matter how important a single client relationship may be to a US-based financial advisor there are always going to be other aspects of the broader [Bank of America] balance sheet that need to be taken into account,’ he said. 

If they exit, the firm’s decision will definitely not be a popular one.

Along with team exits, a trio of international advisors have launched a lawsuit against the firm. The advisors allege it mislead them about its commitment to the global wealth management business after it sold its non-US based wealth management offices to Julius Baer in 2012.

‘What their ultimate plan is - that’s the $64,000 question,’ said Grenier. ‘Is it the first stage of a multi-stage exit or the final stage?

‘We expect that there will be additional people leaving that platform as more of the new restrictions kick in… there is still more erosion to take place and we expect to benefit from that,’ he said.

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