Hire Wire Sep 13 2011

Merrill Lynch to Be Spared in BofA Cost-Cutting

By shira ovide

Bank of America is making big spending cuts, but the financial advisors in its Merrill Lynch unit aren't anticipating a lot of pain.

Industry analysts said that Merrill Lynch, as one of the bank's star divisions, should be largely insulated from the $5 billion in annual cost reductions and 30,000 job cuts expected in coming years. Merrill advisors interviewed Monday also said they weren't too worried about the cuts.

Bank of America disclosed details about the reshaping plan on Monday but gave few specifics.

Merrill Lynch's advisors are among the highest revenue producers among all brokerages, so the bank has to tread carefully with cuts or risk losing them. "Producing brokers are like prima donnas because they have options," said Aite Group analyst Alois Pirker.

BofA's brokerage unit won't be completely immune to cuts, however. In a presentation Monday, CEO Brian Moynihan said an upcoming phase of the bank's cost-cutting plan will seek to reduce part of BofA's $28 billion annual expenses in wealth management -- the division that includes Merrill. But that phase will kick in after BofA works on expenses cuts at its consumer-oriented businesses.

Cuts at Merrill, should they happen sooner or later, most likely would target back-office functions, such as information-technology staff or mid-level management, analysts said.

Merrill Lynch has about 16,000 advisors, but is rather lean in terms that really matter, brokers and analysts say. For years, Merrill has been weeding out lower-producing advisors, as have other companies. In the process, it has boosted the average revenue production per advisor to $894,000, one of the highest rates in the industry and up from $816,000 two years earlier.

Showing the door to some lower-producing advisors isn't out of the question. "I'm not sure the advisory field is as sacrosanct as it may have been," said Stacey Haefele, chief executive of HNW, a marketing firm focused on the wealth market. "But I don't think they will turn to them first."

In the tough times after the 2008 financial crisis, many brokerages cut out their training programs, an important channel for new homegrown talent. But Merrill still is proceeding with its plans to take on 1,500 to 2,000 new trainees this year, a bank spokeswoman said Tuesday.

Making some adjustments in the payout structure for advisors would be a way to reduce expenses, but executives are aware how highly charged any changes in the formula would be. Last week, after BofA disclosed it ousted Sallie Krawcheck as head of wealth-management, executives assured advisors they would continue to be paid a percentage of the fees and commissions they generate from clients, and to be rewarded for reaching other asset-based goals.

Merrill isn't alone in seeing belt tightening at its parent company. Last month, UBS AG said it will lay off more than 5% of its workforce, mainly in its investment bank, but with some cuts also coming at its U.S.-based brokerage. Morgan Stanley, which operates Morgan Stanley Smith Barney via a joint venture with Citigroup, also has been focusing on cutting costs this year.

Shira Ovide is a reporter for Deal Journal. Jennifer Hoyt Cummings is a reporter for Financial Adviser. This story originally appeared on Deal Journal.

Brett Philbin and David Benoit contributed to this article.

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