Best Wealth Management Program

Summary Analysis

ank of America Corp. is not just a bank but a symbol of the nation’s heavily consolidated banking industry, where the top four banks now control $8.4 trillion in assets, or about half of the industry’s total assets. As the country’s second largest bank, Bank of America alone commands over $2.75 trillion of that.

Bank of America is the product of a great many acquisitions spanning more than three decades, and one of the biggest was its 2008 takeover of Merrill Lynch & Co. during the depths of the financial crisis. As the premier wealth manager in the country, with a force of more than 18,000 advisors nationwide as of the end of 2016, Bank of America has the largest wealth and asset management platform of all the big banks, thanks to Merrill Lynch.

Bank of America tops our list of wealth and asset managers because of its size and strength, which it will need to face the challenges ahead. It is the largest in terms of net revenue for its wealth and asset management business, driven in large part by the size of its Merrill Lynch franchise. It also has the strongest wealth management brand among the big banks, and public perception of the bank and its brand are improving. In ranking the banks, we analyzed revenue for both wealth and asset management as reported by the banks, which normally included trust revenue. When wealth and asset management revenue was not reported, we used estimates by analysts who covered the banks. Although asset management may not traditionally be included in wealth management, many banks didn’t break down their wealth and asset management revenue separately. We also included number of advisors, efficiency ratios, expert opinions and customer service ratings.

Finishing second on the ranking was JPMorgan Chase & Co., which is primarily an asset manager, meaning it manages investment assets on behalf of third parties such as pension managers and has more assets under management than any other bank. JPMorgan has a smaller wealth management business primarily catering to ultra-high net worth individuals. Third place went to Wells Fargo & Co.

All the big banks, including JPMorgan, are investing in their online and digital offerings to attract what’s known as the mass affluent—people with a couple hundred thousand to invest, but not a couple million. JPMorgan’s private client business, in particular, has been growing this client base, as has Bank of America, with its Merrill Edge product, says Michael Foy, a senior director of wealth management at J.D. Power, which surveys consumers and compiles customer satisfaction rankings. Meanwhile, Wells Fargo has come out with Wells Trade, a digital platform that serves the mass affluent.

Despite these efforts, the biggest banks rarely make it to the top of J.D. Power’s wealth management customer satisfaction rankings, but they have improved, Foy says. “They have invested more, given the focus they have found on wealth management to drive revenues in the sustained low interest rate environment,” he added.

The biggest banks are making other changes to make sure they don’t get left behind by market forces. For example, investment dollars are moving toward passively managed index funds. There was a doubling of assets in index-based mutual funds and exchange-traded funds from 2012 to 2016, ending the year at $5.07 trillion, compared to a 22 percent increase in assets in non-index mutual funds and exchange-traded funds during the same period to $9.98 trillion, according to research firm Cerulli Associates, using Morningstar data.

Tom Brown, president of the hedge fund Second Curve Capital and a veteran analyst and investor in bank stocks, says he expects that the amount of money in passively managed funds will surpass the amount of money in actively managed funds. Younger investors and the mass affluent are more focused on saving money on fees than on finding someone to actively manage their accounts, he says.

The Department of Labor fiduciary rule, which has been delayed, would encourage wealth managers to move retirement money into fee-based advisory accounts managed by a fiduciary, instead of a broker. That will further put pressure on active money managers, including some of the big banks.

Asset managers such as JPMorgan stand to lose assets as they have been largely dependent on more actively managed funds, but they have been adjusting to offer more passively managed funds as well, analysts say. The biggest managers of passive funds are Vanguard, BlackRock and State Street Corp. Brian Kleinhanzl, a bank analyst at Keefe, Bruyette & Woods, says that if big banks like JPMorgan and Wells Fargo don’t aggressively change their mix, they will continue to see money in actively managed funds leave the firm.

The biggest banks have the size and strength to continue to grow, as long as they adjust to the demands of the market and younger generations who are now building their assets.

How They Ranked

Did You Know?

verybody wants to be in the business of robo-advisory—and for good reason. Startup companies such as Betterment and Wealthfront began using artificial intelligence nearly a decade ago to set up portfolios online, rebalance assets over time, harvest tax losses and do all this at a lower cost than a dedicated financial advisor would charge. Wealthfront, for example, offers its digital advice for just 0.25 percent of assets, lower than the typical 1 percent or more that a full-service financial advisor would charge for modest-sized accounts.

But it wasn’t long before the biggest asset and wealth management brands such as Vanguard and Schwab got into the business of robo-advisory, too, and have already grown their assets well beyond those of the start-ups. The biggest banks in the country also are planning to roll out their own robo-advisory services, if they haven’t already, and they have the strength and the size to invest and grow these services over time. Many observers expect robo-advisory to grow substantially in the coming years, and some of them expect artificial intelligence to truly transform the industry. The biggest banks stand to be some of the biggest beneficiaries of this trend, because they have the brand names, the customers and the dollars to invest in the services.

“Everybody is trying to build or buy or partner to have some sort of robo-advisor,’’ says Michael Foy, senior director for wealth management at the customer satisfaction research firm J.D. Power. “Most of the firms don’t like to call them robo-advice, they call them digital advice or something else.”

S&P Global Market Intelligence says that as of 2016, robo-advisors managed $100 billion of assets, most of it by behemoths Charles Schwab, Fidelity Investments and Vanguard Personal Advisor Services, the latter of which controlled $51 billion of the robo market that year. S&P estimates that assets managed by robo-advisors will grow to $143.9 billion this year, and to $450 billion by 2021.

Almost all of the very large banks have announced plans to develop artificial intelligence-backed advisors. JPMorgan Chase & Co. CEO Jamie Dimon pledged in his 2017 shareholder’s letter to roll out inexpensive automated retirement and non-retirement investment advice later this year. Bank of America Corp.’s Merrill Lynch & Co. investment management subsidiary has launched Guided Investing, which promises a 0.45 percent annual fee. Wells Fargo & Co. also has indicated plans to launch a pilot digital advisor in 2017. U.S. Bancorp has partnered with financial technology firm FutureInvest, now owned by money manager BlackRock, to begin offering services to U.S. Bancorp clients in 2018. Other banks likely will forge similar partnerships with roboadvisors if they don’t develop the products in house.

The reason artificial intelligence likely will grow in popularity is because it provides a way to expand the market to more clients at a cheaper cost, especially to the young and mass affluent. “There are limits to how many clients an individual advisor can serve effectively,” says Foy. “But if the advisor can use [artificial intelligence], [he or she] can be more effective.”

Jeff Harte, an analyst at Sandler O’Neill + Partners, says the strategy of these big banks is to nab younger customers early, when they might have fewer assets, and service them as they grow older and begin to accumulate more assets.

Kendra Thompson, the head of global wealth management at the consulting firm Accenture, thinks robo-advisory in the future will look much different than today, and will transform the industry. “There is not a bank we know of not looking to include robo,” she says.

Artificial intelligence capabilities allow computers to learn from patterns and make recommendations going forward, a capability that goes beyond automation or self-service mobile and online banking services. It also goes beyond data analytics, which looks at past data. Artificial intelligence, for example, can determine by the tone of your voice whether to change its recommendations or how to handle you, says Thompson. It’s part of a larger trend where robots will be providing various kinds of advice, not just about investments, but about other financial matters, as well. Whether or not clients know that they are getting advice from a robot, banks will be able to use computers to back up human advisors to improve their customer service and advice.

Clients are looking for rich digital experiences, and the wealth management industry needs to change with them, Thompson says. The biggest banks and large wire houses are in the best position to do so, because they have more capital as well as the technology and marketing budgets to invest in it. “All of our chips are betting on incumbents,” she says.