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A New Edge for an Old Brokerage House
In late June, Bank of America’s (BAC) Merrill Lynch launched a discount brokerage branch, Merrill Edge. The new online platform should help one of the largest financial institutions in the United States fill in some gaps management planned to address in its business mix, and better position the company for long-term growth.
Merrill Edge combines Bank of America’s banking strength and existing online infrastructure with the in-house research, investment products, retirement-planning tools and advisory call center Merrill Lynch developed before the two financial stalwarts merged in January, 2009. This new system should help current clients to more effectively manage their investments, savings, credit, banking needs, and retirement assets. Edge’s design, specifically its online platform, phone channels, and branch offices, ought to attract self-directed investors who may consider taking advantage of supplementary services or investment guidance.
In the past few years, Merrill lost significant business to mutual fund families like Vanguard and Fidelity. In addition, many of its customers have been drifting to online brokerage accounts as a cheaper alternative to perform basic trades. The company was being threatened by not only the lost assets, but by the fact that it was losing customers to the valuable complementary services mutual-fund organizations and e-brokers were providing, such as those addressing clients’ more routine online banking needs. Merrill Edge ought to help the company recapture the assets that its customers scattered among competing financial firms. Also, this move should provide its current clientele with a full-service experience so that they will not take their business elsewhere.
Bank of America’s existing online brokerage accounts will be transferred to the new online platform over the course of the summer. Looking ahead, we think that the financial stalwart will be able to build its client base thanks to the various services it will offer.
Still, Merrill Edge may face stiff competition in the online marketplace. Discount brokers like Charles Schwab (SCHW), E*TRADE (ETFC) and TD Ameritrade (AMTD) have bolstered their businesses and extended their market reach over the last few years. To this end, they have relied on technological innovations to help distinguish themselves from one another, building their competitive advantages with the introduction of new tools and products, tailored to their individual client bases. In addition to these online brokerage houses, Wells Fargo (WFC) is also creating an online platform.
It is unclear how much of a dent Edge will make in the pure-play e-brokers’ market share. For example, much of E*Trade and TD Ameritrade’s daily income comes from active traders. Merrill will most likely not target those who move in and out of the market, riding the highs and lows of the day. Also, the aforementioned discount brokers often concentrate on niche markets and have, therefore, catered tools and products to their specific clientele.
While Merrill Lynch will likely focus on clients with more than $250,000, Merrill Edge will instead target customers with fewer assets. Also, this division is designed for accounts that do not need the full- service treatment that Merrill Lynch traditionally provides. Still, branch offices and call centers are available should new customers desire a more conventional brokerage experience. All told, the company may well focus on a younger demographic than the wire houses traditionally attract. The younger generation is typically technologically savvier, and tends to appreciate the greater transparency, liquidity, and control of online accounts.
While some believe that this online platform will build brand loyalty, others are afraid that this move could tarnish the Merrill Lynch brand name. Investment banks have been long viewed as “members only clubs.” Therefore, this market expansion somewhat detracts from that air of exclusivity. Even though the Bank of America merger has affected the culture of the organization, it is unclear whether the patrons of Merrill Lynch are ready for the company’s new persona.
Personal investing has undergone a lot of changes over the past decade. Many brokerage houses have adjusted their businesses in order to keep pace with the needs of their customers. We think that Merrill Edge will enable Bank of America to keep up with market trends. Moreover, this new outlet should help showcase the benefits of the Merrill Lynch merger.