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Technology > Investment Platforms > Turnkey Asset Management

Merrill Edge: Competitive Game-Changer, Says Industry Research Firm in Report

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Wirehouse advisors continue to manage the bulk of U.S. client assets, says a report published Wednesday by the Boston-based Aite Group report. But online brokerages, like Schwab, are gaining ground and pushing the wirehouse firms to ramp up their online offerings.

The online Merrill Edge platform should help Bank of America-Merrill Lynch stem the loss of clients to the online brokerage channel, analysts say. And it also promises to shake up the brokerage field for advisors and clients alike.

“It’s really key to the bank’s organic growth and the only way to grow after the acquisition [of Merrill by BofA],” said Sophie Schmitt, a co-author of the study, in a phone interview.

“Merrill Edge is very powerful as it provides the mass affluent with a diversity of programs for growing assets …. It also seems integrated with the banking side to help clients set up an emergency and debt accounts. It’s a holistic approach for the mass affluent.”

Online Pressure

According to Aite research, the wirehouse broker-dealers — Merrill, Morgan Stanley, Wells Fargo and UBS — held about 38 percent of the $12.4 trillion in assets across the wealth-management industry as of 2009. That figure, though, was 1 percent lower than in 2008.

Meanwhile, online brokerages increased their market share by nearly 1 percent to 17 percent last year. Plus, each of the major online brokerage firms — Charles Schwab, TD Ameritrade, Fidelity Investments and E*Trade — have boosted their account portfolios by 3 to 9 percent in the past two years, Aite says, as more investors look for self-directed options during and after the financial crisis.

A 2009 Aite survey of more than 400 financial advisors at the wirehouses found that nearly one-fourth said they lose most of their clients to online brokerage firms. And close to 30 percent of the wirehouse FAs said they wished their firms offered online trading.

With many clients working more financially and socially online, Bank of America decided to make a move in June. “Banks without such a strategy need to ramp up, and that’s what Bank of America-Merrill Lynch did with this tool,” said Schmitt.

Merrill Edge

Merrill rolled out the Merrill Edge platform in June. It targets both Bank of America-U.S. Trust clients and Merrill Lynch mass-affluent clients, i.e., those with between $100,000 and $250,000 in investable assets.

Clients in this category can work through self-directed programs online or via the group’s phone-based service center, the Merrill Edge Advisory Center. Depending on the level of assets kept at Merrill, clients can make a certain number of trades for free each month.

This online platform puts Merrill ahead of rival Morgan Stanley Smith Barney, analysts say, since the latter is more focused on higher-end clients and its integration efforts. This group has lost many clients with less than $1 million in assets over the past two years, which is partly by design — but not entirely of its own choosing.

And while Citigroup is making efforts in this area, its push is not as organized as Merrill’s. “It’s still a work in progress,” said Schmitt. Wells Fargo is the only other wirehouse with a strong mass-affluent strategy, Aite notes.

Online Brokerages

Merrill Edge gives clients of Schwab and similar platforms reasons to come over the Bank of America, the Aite group says. With free trades and more banking products available, the incentives are “huge,” shares Schmitt. “It’s really hard to compete with this,” she explained, “especially with BofA clients.”
Merrill Edge clients can trade options, Schmitt points out, and get access to Merrill’s equity research, top stock picks and more. “The tools are pretty extensive,” she said.

At the same time, by giving Merrill clients with $250,000 in assets or less an attractive online and phone-based platform, it frees up branch advisors to focus on those with more assets. (FAs do not get fees and compensation for servicing these accounts.)

Some studies have found that the independent broker-dealers and regional broker-dealers have a large percent of clients, say 30 percent to 40 percent in the $100,000 to $250,000 range, Schmitt shares. And Merrill Edge’s offerings would give them strong incentives to move over to an online wirehouse platform, the Aite report states.

Getting all of Merrill Lynch’s 15,300-plus advisors and the U.S. Trust advisors on board with Merrill Edge will not be easy, the research group explains. And BofA will need to get its management and information technology firmly behind the effort.

However, Aite argues, though the verdict is still out, Merrill Edge represents a powerful competitive threat to the online broker-dealers, as well as to the independent and regional firms. Furthermore, the online platform represents a radical shift in the mass-affluent segment of the wealth-management industry, it concludes.


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