Bank of America is investing in its wealth management business
Major US banks (XLF) are focusing on expanding their wealth management businesses in order to offset the negative impacts of low interest rates and muted trading activity on their revenues.
At a Deutsche Bank Global Financial Services Conference held in June 2016, Keith Banks, the president of Bank of America’s (BAC) Wealth Management arm US Trust, highlighted the importance of expanding the wealth management business.
Banks also laid out BAC’s strategy for the expansion of its wealth management business. Bank of America has been investing heavily in growing this business. It competes with UBS, Morgan Stanley (MS), and Wells Fargo (WFC) in this segment.
According to a Reuters report, Bank of America plans to add 100 financial advisers. These additional 100 financial advisers will bring the bank’s total headcount to above 450 over the span of the next three years, according to Banks. This strategy is also part of the company’s plan to tap in to ultra rich clients to witness growth in the wealth management segment.
Traditionally, the wealth management business is considered to be a stable, revenue-generating source. Prolonged low interest rates and challenging market conditions have hurt revenues from interest related activities as well as investment banking and trading.
Banks are thus relying on wealth management to boost their incomes. Though wealth management is a stable revenue generation source, Bank of America’s wealth management business could be impacted by persistent market volatility.
In 2Q16, BAC’s Global Wealth and Investment management segment posted revenue of $4.5 billion, 2% lower compared to a year ago. Its profits, however, were 15% higher on lower expenses. Currently, the company’s wealth management arm contributes ~23% to its total revenue.