Taking the Bull by the Horns
That, of course, stems from its Merrill Lynch acquisition. “The bank itself had been in and out of the [recordkeeping] business but, more recently, it had longed for more of a full-service retirement offering,” says Kevin Crain, the former head of plan participant solutions at Merrill Lynch, who, in December, was appointed to oversee recruiting and management of institutional retirement clients. The Merrill Lynch deal “dramatically extends” the bank’s capabilities in that area, he says.
Can Bank of America finally become a big player in the retirement market? GWIM President Sallie Krawcheck caught some attention when, shortly after her August 2009 hiring, she was quoted describing the retirement plan business as “a hidden gem” for the company, adding that “you will be hearing more about it.”
“Sallie’s premise—and one conclusion that we came to quickly—is that this is really an underappreciated part of the business,” Sieg says in an interview. “People are seeing us advertise for the first time in years on our capabilities in this business. People are seeing the message that we are playing in the retirement space. Now, people will see that we are beginning to tie together the reach we have with distribution. We are going from broad intentions to specific actions. We are showing a strong executive-level commitment to this business, and there are resources being invested in this business.”
Harnessing the Opportunity
The company’s new strategy centers on signing up existing corporate-banking clients as retirement-plan clients. “We are very focused on opportunities between our retirement business and our global commercial bank, the GCB. The GCB has a relationship with about one of every three middle-market companies in the United States,” Sieg says, defining that as companies with $20 million to $1 billion in revenues, or $10 million to $250 million in plan assets. “For them to have the ease and convenience of one partner that can provide for their banking needs, credit needs, and retirement needs is a very strong value proposition,” he believes.
Leveraging the cross-selling opportunity holds so much potential for the company “that the challenge is to come up with the right models to maximize growth—and do it as quickly as we can, so we do not lose the opportunity,” Sieg says. “The issue is: How do we harness that opportunity and build the right—and sustainable—infrastructure? We have seen enough evidence in the past six to nine months of the power of bringing the organization together. Now, the challenge is: How do we scale that to the fact that there are 160,000 client companies in the global bank? This is not a niche opportunity.”
With its wide reach in the business world, Bank of America “should have a real opportunity to cross-sell,” says Geoffrey Bobroff, President of East Greenwich, Rhode Island-based Bobroff Consulting, Inc., which works with investment-management companies. He expects to see the company step up marketing to plan sponsors similar to Fidelity Investments’ spectrum of total benefits services. Asked about the company’s interest in total benefits, a spokesperson says, ”We [Merrill Lynch] have provided integrated benefit services for more than six years, have close to 300 institutional clients using some form of these services, and expect to grow significantly in the integrated benefits space in the years ahead.”
“To take a building approach to the various corporate markets, with the reach they have, makes a lot of sense,” Bobroff says. “The real question becomes, how important is the retirement space?” Much of that market’s value to BofA Merrill Lynch ultimately may derive from the ability to transition high-net-worth plan participants into high-net-worth individual investors when they retire, he thinks.
Bank of America’s acquisition of Merrill Lynch completes the spectrum of wealth-management offerings for BofA, says Doug Dannemiller, a senior analyst at Boston-based Aite Group, LLC, a research and advisory firm focused on financial services. “What they have essentially is a feeder pool to a very high-margin, lucrative business,” referring in the latter case to retail investors. The retirement plan business has been less of a contributor to Merrill Lynch’s financial results than retail investors in the past, he says. At the time of the acquisition in fall 2008, Merrill Lynch had 1,400 institutional retirement clients totaling 2.4 million participants, the company spokesperson says.
However, Bank of America’s ownership opens up the smaller-plan business for Merrill Lynch, Dannemiller says. “That works well in adviser-sold retirement plans. If you look at the spectrum of plan size that Merrill Lynch currently has, it is stronger in the larger-plan market than the smaller-plan market,” he says. “It is a lot easier to pare down the offering and make it appropriate for the smaller-plan market than the other way around.”
However, the strategy has major potential challenges. The hope for “cross-pollination activity” between the bank and brokerage sides makes sense strategically, Bobroff says. “Yet, we know from the history of so-called ‘financial supermarkets’ that one-stop shopping has not proved to be successful in the past,” he says. “I do not think that people necessarily crave buying everything from one source.” Even if that craving does exist, he says, the operational difficulty with that sort of cross-selling is that “banks and brokerage firms tend to be a series of silos,” he adds, “and asking people to give up their turf to get an institution to function with a commonality of interest is challenging.”
Gauging the Adviser Impact
The company has stabilized adviser defections following the acquisition
and market upheaval, Dannemiller says. “There was a significant
departure from the major wirehouses through all the turmoil. A lot of
advisers were saying, ‘How is this brand helping me?’”
Merrill Lynch Wealth Management had retained 90% of its top-performing
advisers—defined as $1 million-and-up producers—since the beginning of
2009, the company spokesperson said in December, and he characterized
fourth-quarter 2009 turnover rates as “at historic lows.” Retention was
“slightly higher than 90%” at the end of 2008, he adds. Sieg adds,
“Broadly, when we look at the advisers leaving versus those we are
hiring….The FAs we are hiring on average are about twice as
productive as those who left.”
The company hopes to improve its retirement-market infrastructure with
a new plan adviser designation (see “BofA Merrill Introduces Retirement Plan Adviser Designation”).
The program seeks “to really identify the financial advisers in the
Merrill Lynch organization who are most sophisticated around mid-market
and large-market retirement products and services,” Sieg says. A team
within the global bank will identify strong new potential retirement
plan clients that already work with the bank, then collaborate with
advisers among the accredited group to pursue the business. Advisers in
this group will receive referrals from the global commercial bank and
the global corporate investment bank for retirement plans with $10
million or greater in plan assets and will lead partnerships with
non-designated FAs who refer clients with retirement plans greater than
$50 million.
Many Merrill Lynch advisers currently are generalists, says an unnamed
Merrill adviser interviewed for this article. “Probably the vast
majority of Merrill advisers have a couple of plans on the books, but
that is not necessarily their specialty,” he says. If the accreditation
program discourages less-qualified advisers from trying to work with
retirement plans, he sees a benefit. “We want to make sure that the
plans being sold are being represented by an adviser who can provide a
high level of service, so it does not tarnish our name,” he says.
Bruce Gsell, who has been at Merrill for his entire 33-year career,
qualifies for the accreditation. He feels enthusiastic about potential
client referrals from the bank. “If you look at how many households and
businesses it touches in all size markets, that opportunity is
fantastic,” says Gsell, a First Vice President and senior financial
adviser in Edison, New Jersey. “If they already do business with
clients in other areas, that is a lot better way in to the client than
picking up the phone and trying to call your way in.” In December, he
had talks in progress with two employers he had been introduced to
through the new referral system.
The previously mentioned unnamed adviser, who also qualifies for the
accreditation, said in December that the referrals already had led to a
handful of meetings with potential sponsor clients. In the past, he
sometimes has had trouble competing against banks that have an existing
lending relationship with an employer, so the employer has kept its
401(k) plan there, too, “because the perception is that the lending
package will be more favorably looked upon if the 401(k) is there,” he
says. He adds that, “Now we can leverage banking relationships, too.”
Although the program does designate specialist retirement plan
advisers, the designation does not change the company’s position on
advisers as fiduciaries (this does not allow the adviser to sign on or
act as a fiduciary to a retirement plan) and it does not change the fee
structures that the company offers to advisers’ retirement plan
clients. Asked what improvement in the company’s retirement business he
would recommend to new Bank of America CEO Brian Moynihan, the adviser
says he would like the option to work fee-for-service, which he does
not have now. It has not been a big problem so far but, as he thinks
about developing industry trends, he believes it could become one with
some employers. “It may put us at a little disadvantage, and it may be
harder to keep the business,” he says. “I would rather have everything
be available to me, and decide what is best to do.”
When asked for his advice to the new CEO about improving its work with
retirement plans, a second unnamed adviser, who also focuses on
retirement plans but operates in another part of the country, says, “We
need to expand the product offering. It is difficult to compete when we
have share-class restrictions” because of 12b-1 agreements that Merrill
Lynch has with some providers. For instance, he says he can generally
only offer an “A” share to a plan with assets of less than $50 million.
“We just do not have the ability to customize what we can charge, based
on plan needs, to be competitive,” he says. Facing other providers with
more-open platforms, he says, “We have to even out the platforms to
compete.”