The increase in the number of advisors at Merrill Lynch was not enough to stem outflows from the firm, as a breakdown of its figures that WealthBriefing reported yesterday demonstrates.

Clients of Merrill Lynch advisers withdrew $3 billion worth of assets during the third quarter even though the firm increased its adviser headcount – an indication the firm is unable to hold onto its top quality fee-earning producers, an analyst said.

The firm blamed “client reaction to persistent volatility and negative market movements” in its results announcement for the loss of $3 billion in total net new client money during the period.

The firm also announced its FA headcount was 16,850 at quarter-end, a net increase of 160 FAs during the quarter and 240 from the third quarter of 2007.

“Total headcount is not really that critical to the success of a wealth business like this,” said Boston-based senior analyst for the Aite Group, Alois Pirker.

“Who’s leaving and who’s staying, that’s the important thing,” Mr Pirker said.

A recent survey conducted by the Aite group found the large brokerage businesses like Merrill Lynch are having trouble retaining advisors with recurring fee income.

“It’s the 100 per cent commission advisors who are reluctant to leave the wire houses,” said Pirker.

“Those brokers who have managed to increase recurring fee income are the ones leaving to start their own practices.”

Mr Pirker said one in four advisers at the large brokerage houses are currently thinking about “going independent”, according to a recent survey conducted by Aite.

“That’s $2 billion that is potentially going to walk out of the door from these businesses,” he said.

Both Merrill Lynch and Citi announced heavy losses.

As reported, Merrill Lynch announced a $5.58 per share loss compared to the $2.82 per share loss it announced a year earlier. It was a heavier loss than expected for the brokerage, colloquially referred to on Wall Street as “the Thundering Heard” because of the number of financial advisors it employs; according to press reports, a Reuters poll determined analysts on average were expecting a loss of $5.18 per share.

Citi, the owner of brokerage firm Smith Barney, posted a loss of $2.8 billion, or 71 cents per share, down from profit of $2.21 billion. 

As previously reported, Merrill chief John Thain has agreed to remain at Merrill following the deal that saw Bank of America acquire the brokerage giant at the beginning of the month.

While shareholders from the two companies have yet to vote on the all-stock deal, the wealth management community in the US is watching to see how Merrill advisers will react to bank ownership.

“Planning to go independent takes time… it could be months before we see Merrills’ top producers leaving as a reaction to the bank ownership,” added Mr Pirker.