Merrill Lynch retail head Launny Steffens answered questions from Registered Representative at an industry event in New York in October.
What's your concept for integrating a discount business with full service?
Steffens: We're going to have an unusual platform--a platform of total choice. A client will be able to have a managed account, a FC-related account, a Merrill Lynch Direct account and an Unlimited Advantage account. And, at the end of the month, the client will get a statement showing the performance of those accounts together.
In the vast majority of cases, I suspect the FC will be able to look at a client's Direct account, even though he's not getting compensated directly on it. It's going to get fed into his asset-gathering award, but not his direct commissions. And if the client had a history of doing badly, he would have an opportunity to add value to [improve] that. This gives [reps] the ability to retain some degree of control and an opportunity to entice [clients] to come back. What we're doing is putting a very big bet on advice.
You're not hemorrhaging accounts to online brokers, are you?
Steffens: No, no. Depending on your definition, 15 percent to 20 percent of individual trading is done online. To just give that away is not a very smart thing for us to do.
Tell us about changing the culture at Merrill.
Steffens: I'm surprised I don't have more gray hair. It's a tough problem. Some people don't want to make changes while the business is very good. It's the same argument we got against the CMA, asset gathering and financial planning. My hope is that we've learned enough so we can shorten the implementation time frame.
What would you tell brokers who are worried about the Internet?
Steffens: I would tell them there's only one thing to fear, and that's the inability to add value. They have to wake up every morning and ask how to add value--how can they help clients make better investment decisions.
In the meantime, prices are falling.
Steffens: This is the secret of Merrill's business. [He draws crossing supply-demand lines.] In 1985, we were here at X percent in terms of what we generated on assets, and we had $200 billion in assets. We now have $1.5 trillion, and we're now generating 0.4X percent. We've taken a 60 percent pay cut over the past 14 years. But we've had a sevenfold increase in assets. The only way to do that is grow [clients'] assets so they trust you, bring you more assets and send you their friends. That's what this is all about.
We'll open a million new accounts this year with $100 billion in assets. Every single one of those people understands that we're not the lowest-priced provider. A hundred billion dollars voted with us. So my sense is full service is alive and well.
For more of Steffens' comments, see "Merrill Retail Chief Outlines Strategy," at www.rrmag.com in the Top Stories section.--Dan Jamieson