Merrill's Discounting Causes Shock Waves

Merrill Lynch's June announcement that it would be slashing pricing on fee accounts, starting a discount business and offering unlimited online trading to fee and discount customers has the industry buzzing about the future of full service. But brokers at the firm seem generally supportive about the move."The feeling is positive," says an East Coast Merrill financial consultant. "Most people here

Merrill Lynch's June announcement that it would be slashing pricing on fee accounts, starting a discount business and offering unlimited online trading to fee and discount customers has the industry buzzing about the future of full service. But brokers at the firm seem generally supportive about the move.

"The feeling is positive," says an East Coast Merrill financial consultant. "Most people here feel that this is a recognition of [competitive pressures]."

A West Coast Merrill rep dismisses the idea that the firm's brokers could be harmed by the new discount operation. "Those aren't my accounts anyway--that's not our market."

But another rep in the West disagrees somewhat, saying, "In the long run, it's going to pay off [but] it's going to be tough in the short run."

In debuting the package of initiatives, Merrill took pains to highlight the continued need for the broker. "A professional, experienced financial consultant ... is central to Merrill Lynch's client-focused business strategy," Merrill said in a statement, adding that it will be boosting its broker work force.

The firm does anticipate some conversion pains and plans to offer reps a "two-year bridge program" that will be "some sort of stock plan," a spokesperson says. A separate transition plan will cover brokers who convert existing fee accounts into the new lower-priced fee program, which has a working title of the "core relationship account."

The new pricing is substantially lower (see "Merrill's Major Fee Cuts," above). Although officially slated for a July 12 rollout, the new pricing was being implemented within the firm's existing Financial Advantage accounts shortly after the June announcement.

Merrill is also eliminating its discount sharing policy on traditional commission accounts, which will allow reps to discount trades without discounting their own payout.

Beginning in December, the new discount operation will offer $29.95 stock trades, and funds and bonds at a price the firm says will be competitive with Schwab and Fidelity. Merrill will offer "slightly scaled-down" research to its discount clients, according to the spokesperson. Minimum account size for do-it-yourselfers will be $20,000.

"We're looking for people who will grow into full-service Merrill clients," the spokesperson says.

The firm will create an as-yet-unspecified broker-referral system for its discount clients who decide they want advice. Self-directed clients who also have a full-service account will be able to choose to have all their holdings consolidated onto one statement for their broker to see.

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