Merrill Goes to School for a New Fund Name

Merrill Lynch, in an effort to bolster distribution of its poor-selling proprietary funds among third-party financial advisors, unveiled on Monday a new retail asset-management brand name: Princeton.

Merrill Lynch, in an effort to bolster distribution of its poor-selling proprietary funds among third-party financial advisors, unveiled on Monday a new retail asset-management brand name: Princeton.

Beginning in May, the company said in a statement, the New York firm’s U.S. retail products will be offered under the Princeton Portfolio Research & Management brand, affecting about $223 billion in mutual funds and separately managed accounts in the United States.

Previously, Merrill’s retail products were sold under two different brands—Merrill Lynch Investment Managers (MLIM) and Mercury Advisors. Merrill’s institutional and overseas businesses, however, will retain the MLIM moniker. Fees on its lineup of 108 mutual funds will remain at current levels, according to a Merrill spokeswoman.

Merrill hopes the rebranding initiative will beef up the sale of funds and other managed products through rival brokers hesitant to push Merrill products. “The reason we did it was to grow our newest, smallest and highest potential business: third-party retail asset management,” says Robert Doll, president and CIO of MLIM. “It was a necessary change for us to be successful.”

Merrill is counting on the name change to win wider acceptance from non-Merrill financial advisors, most of whom view the firm as a competitor. According to Boston research firm Cerulli Associates, 95 percent of the estimated 299,978 registered advisors in the U.S. are non-Merrill advisors. In fact, Doll says, some offerings that didn't explicitly carry the Merrill nametag, such as some of its closed-end funds, have been its biggest sellers.

In adopting the new name, Merrill engaged in a bit of geographic spin. Its facilities are in Plainsboro, N.J., but that doesn’t quite have the same ring as neighboring Princeton, home to the famed Ivy League school. “There’s no question that the association with Princeton University is a positive,” Doll says.

Jeff Keil, principal of Keil Fiduciary Strategies, a consulting firm based in Littleton, Colo., agrees. “In the distribution world, appearances can have quite a substantial impact,” he says.

The rebranding effort comes on the heels of heightened scrutiny of proprietary-fund sales on the part of regulators, who are eager to stamp out conflicts of interest when brokers are making recommendations. In September 2003, Morgan Stanley paid a $2 million fine to the NASD for sponsoring illegal sales contests involving proprietary products. Several other firms have been hit with class-action suits for pushing in-house funds without proper disclosure.

Before Merrill made the switch, Doll says it was important to get performance back to respectability. Since coming on board as head of the money-management unit in late 2001, the results have been very positive. Indeed, the average Merrill domestic fund sports a three-year annualized return of 16.99 percent as of Dec. 31, 2005, according to Chicago-based Morningstar. That tops the 16.28 percent return for the average U.S. mutual fund.

On a one-year basis, the numbers are even more compelling. The average one-year return for Merrill’s domestic lineup shows a 10.27 percent gain, as compared to the 6.86 percent return of the average U.S. mutual fund. As for the more critical five-year numbers, Merrill’s 3.25 percent return outpaces the industry average of a 2.41 percent return. MLIM’s lineup of 108 funds now includes 42 four- and five-star overall Morningstar rated funds as of Dec. 31.“We don’t want to wave a new name without making improvements to back it up,” Doll says.

But a better performance track record hasn’t yet translated into higher sales. In fact, investors have withdrawn more than $34 billion on a net basis from Merrill’s stock and bond funds since 1998, according to Financial Research Corp. (FRC) of Boston. Within that universe, its domestic funds have bled $21 billion. Assets held in long-term funds stand at $61 billion, FRC says.

Despite sagging sales for its long-term mutual funds, total assets under management for MLIM’s U.S. third-party retail business have ballooned to $28 billion, up from $4 billion at the end of 2002, according to Merrill’s calculations. For the full year 2005, MLIM’s pretax earnings were a record $586 million, up 27 percent from 2004, on net revenues that rose 14 percent, to $1.8 billion. The 2005 pretax profit margin was a record 32.4 percent, an increase of over three percentage points from a year earlier.

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