Merrill Lynch's thundering herd is on the frontlines of one of the most volatile markets in recent history. Financial advisors' main job: Keeping thousands of clients calm and preventing them from making panicked decisions about their money. It's no easy task under normal circumstances let alone during a global pandemic that sparked the biggest selloff since the Great Recession.
But while markets remain volatile, unemployment edges toward record levels, and the fallout from Covid-19 continues, Merrill’s more than 17,000 financial advisors turn to president Andy Sieg for leadership. A 20-year Merrill Lynch vet who's served as the head of the wealth management unit since 2017, overseeing more than $2 trillion in assets, Sieg, 53, explains how he’s shepherding the herd through the turmoil and preparing them for a new normal.
Forbes: How have you seen advisor-client relationships change during the Covid-19 global pandemic?
Andy Sieg: The industry has grown based on relationships, and among the biggest challenges of this crisis is the way that relationships are transforming onto screens.
In this time of social isolation the power of connection is greater than we could have imagined in the advisor-client relationship. The sense of the trust and reassurance that clients have in their advisor is a foundation of our business.
It has been gratifying to see how that has not only carried through this pandemic but intensified with our ability to serve clients uninterrupted despite the changing operating posture of the business. With advisors reaching out to clients through calls, emails, texts and social media, we've seen client satisfaction levels with their advisor rise to all-time highs. We're not face-to-face, in conference rooms, meeting over lunch or going to our client’s homes, but our advisors are closer to their clients and have a deeper dialogue than perhaps at any time.
How is MLWM preparing for the future of Covid-19?
Sieg: We were able to reposition more than 20,000 employees to work from home quickly and seamlessly as a direct result of the flexibility and quality of our technology and operations capabilities. Bank of America BAC invests over $3 billion a year on technological development. The MLWM business benefits from these investments in our ability to operate remotely, whether it's workstation or digital capabilities for our clients.
It is interesting how rapidly advisors and clients are going from being casual users of our technology to it being core to how they operate. In our firm’s New York City headquarters, 90% of checks have been deposited using mobile technology up from just below 50% before the crisis.
There are advisors who never used remote access before, initially, their concern was making sure their work station was set up to work from home. We directed a lot of time and resources to help them and train on the fly.
Clients and advisors began realizing how powerful video capabilities can be; we have an advisor in Chicago setting up a WebEx on the fly, inviting a spokesperson or researcher, and having 400 clients participate on 24 hours’ notice. What used to be a seminar hosted in a conference room is now via WebEx with tremendous participation. It has evolved quickly, five years of progress has happened in six weeks.
What were some of the challenges and successes around transitioning to work from home?
Sieg: If you weren't ready with technology and platforms coming into the crisis, you can't build them overnight or on the fly. This is where investments over the last decade paid off with the ability to have remote access for more than 20,000 people ready and operating flawlessly.
We know this matters because clients are telling us. Our daily tracking of client satisfaction is up significantly. Given volatility and the market decline in March, it's easy to imagine people being less satisfied, but they are more satisfied. We are also bringing in new clients even in this work-from-home posture. Over the last six weeks, we've averaged over 1000 new households weekly. People need advice in this environment. The value of an advisor relationship is clearer today than in normal, calm times.
How did portfolios fare in the first quarter?
Sieg: We've long said, with research and published papers, that when clients are working with advisors they transact less so they're not buying and selling at inopportune times. The benefit is improved performance, lower volatility, and less tracking error.
Those concepts are understood in finance classes but not always by clients. During March and April, we saw an unprecedented bear market in terms of speed and ferocity then a sharp recovery over the following five weeks. As you come into a crisis like what happened in March, client calls are focused on reassuring clients and avoiding panic selling because clients destroy value by panic selling at times of high volatility, when fear overtakes the rational thinking that went into constructing a plan.
The assets in our fee-based investment advisory program, where 80% of our clients are invested, fell during March from $975 billion to about $810 billion at the low point around March 20. Since that time markets have recovered, with client balances at approximately $920 billion. During that downdraft, advisor-client contact led to very little panic selling. Client outflows or re-balancing from equities to cash was less than 1% of the total program assets. Clients were in a position to see that $100 billion increase in the value of their portfolios collectively because there weren't outflows or an elevated level of trading or selling.
How many changes were made to the average portfolio?
Sieg: We saw rotation out of individual stocks into indices, clients didn't feel comfortable with the idiosyncratic risk in stocks but wanted to be exposed to equity markets, so they dumped stocks and bought ETFs. During March, we saw the reverse in fixed income with outflows from fixed-income ETFs and into individual bonds. That moderated a bit in April.
What are clients’ main concerns right now?
Sieg: With shelter in place orders, families are together and conversations are happening around how they want to spend the rest of their life and that, in most cases, links back to financial plans.
The most common dialogue is around priorities and goals, which involves revisiting financial plans. It may be helping connect clients to resources they haven't utilized or clients thinking about the next generation. This is an opportunity to look at everything from wealth to estate plans to insurance and rethink what is adequate.
Clients are also asking about philanthropy and how they can support organizations on the front lines of the battle against Covid-19. That leads to setting up a family charitable program that could be a donor-advised fund or just sharing information about organizations that are making a difference. Bank of America announced a $100 million program to support communities and clients are interested in which organizations we're supporting.
What changes from the pandemic may be here to stay?
Sieg: The digitization of our business and ability to use technology to serve clients, we’ve been heading in this direction of technology being essential and central to client relationships. This is a people business, but we can make clients’ lives simpler and serve them more securely using technology. We have learned about the ability to work from home. That will factor into the design of our offices and how we use real estate.
Clients are learning what's essential in their lives and trying to simplify them. For our financial advisors it is a tremendous opportunity to offer comprehensive services to clients with a desire to consolidate and rely on a relationship with a single advisor.
What lessons have been learned over recent months?
Sieg: The value of a client-advisor relationship for clients, these times show the value of planning ahead and how meaningful it is to have someone reassuring you during a crisis.
It’s highlighting how valuable an advisor is in an uncertain world. Some firms think more clients will be comfortable being self-directed in the future. On the contrary, I've long felt it's going to be a bull market for advice because the world is volatile, chaotic, and unpredictable. Decisions clients make today are more complex than ever and stakes are high because safety nets are not there as much as in the past. This crisis is putting a spotlight on the value of advice.
How have the challenges you have seen in your division fit within the obstacles of the larger bank?
Sieg: More than 10 years after Merrill Lynch was acquired by Bank of America, there is one business, whether someone comes from the consumer bank or they're an investment banker or trader in the institutional business, we're all working together to serve clients.
[Bank of America CEO Brian Moynihan’s] message is to focus on helping clients, ensure clients have their financial lives improved, and make sure we don't have internal barriers preventing us from working together.
What we do for clients is a result of Brian’s vision, bringing the resources of the company together to serve clients whether they are individuals, large corporations, or institutional investors. As different as they are, you have the same strategic themes and the same objectives.