Boring bank clients flock to daily trading platforms during the pandemic

(Reuters) – Retail investment is having a moment. Top U.S. brokerage firms reporting quarterly results this week applauded the self-directed daily trade going on their platforms as people with a little money and extra time on their hands during the coronavirus pandemic have been more involved in the markets.

Bank of America Corp’s (BAC.N) The self-directed investment platform Merrill Edge experienced an increase in trading volume of 184% and an increase in new accounts of 13% during the second quarter. It now has nearly 3 million users with a record $ 246 billion in assets, a spokesperson said. Morgan Stanley (MS.N), which is in the process of acquiring E * Trade Financial Corp EFTC.O, expects to see similar gains when the deal is completed, Chief Executive James Gorman said. “(E * Trade) has attracted hundreds of thousands of new accounts … with that has come real money, not just kids playing,” Gorman said Thursday. “They have brought in billions of dollars of new net assets and deposits, and their platform has been very stable.”

E * Trade reports earnings later this month. The growth of self-directed investment accelerated during the pandemic as more people engage in daily trade from their living rooms on platforms like Robinhood, E * Trade, and Fidelity.

That type of trading is not as profitable for brokerage agencies as asset management for wealthier clients, especially after startups like Robinhood came on the scene with commission-free trading. That led others to cut fees to $ 0, but brokerage houses assume they can make money from retail investors in other ways. They can lend their shares or earn money with margin loans or additional services. Furthermore, people who are casually interested in markets may now eventually want other services, whether in the sphere of wealth management or in more traditional banking. Some clients with significant assets also want a self-directed account to place their own bets, said a senior wealth management executive at Bank of America, who spoke on condition of anonymity.

“We have seen more and more clients that are hybrids,” said the executive. “They have a relationship with a financial advisor, but they also have some of their assets where they choose to be self-directed.” Executives at BofA and Morgan Stanley said the wealthiest clients have not been as active in recent months as the pandemic caused large and unexpected changes in the market. Those clients continued to accumulate cash, even as the stock markets rebounded lately, executives at Bank of America and Morgan Stanley said. “The indicators clearly point to a cautious outlook for our clients,” said Chief Financial Officer Jonathan Pruzan. Second quarter fee income fell 19% from the first quarter this year, although wealth management income at Morgan Stanley increased overall.

Revenue in Bank of America’s wealth management division fell 10% primarily due to lower interest rates and transaction fees during the second quarter.