Mother Merrill Spawns Big Brother Online Brokerage Service 'Merrill Edge'

by: Michael Steinberg

Is spawn the right verb for Bank of America’s (NYSE:BAC) new online brokerage called Merrill Edge? This implies a new creation. Bloomberg’s “Schwab, Ameritrade, E*Trade Drop on Merrill's Plan” quotes a Raymond James research note: “We believe this is simply a re-branding of Bank of America’s existing online brokerage.”

While I believe Bank of America has much to gain by leveraging Merrill Lynch’s prestige and brand power, they are cheapening the brand by starting Merrill Edge before it has a compelling offering. I shopped the commercial banks selling free trades and found their packages no bargain.

Merrill Lynch is trying to lure young Bank of America savers into its “farm club” before the banking and the brokerage are fully integrated. The demo is full of “coming soon” and an FBR analyst said the Bank of America “will need to invest hundreds of millions in technology, customer support, and branding to truly compete for new customer assets.”

At the same time, The Wall Street Journal’s “Merrill Makes Move Into Online Investing” cites concerns that an online brokerage could affect their full-service revenue. Some clients may switch trades generated from their own ideas away from their financial advisor or drop full-service entirely. Clients can lower their costs while still feeling the comfort of Merrill Lynch.

Other financial advisors are looking at the brighter side. Clients have been maintaining play accounts at Charles Schwab (NYSE:SCHW) and Fidelity. Merrill wants to bring that money home. The financial advisers claim they must know all of the client’s assets in order to provide quality advice. They also like the idea of starter accounts under $250K migrating over time to full-service accounts.

I see two problems with Bank of America’s plans: I never liked it when the pioneer discount broker from San Francisco and the firm (NASDAQ:AMTD) whose spokesman starred in the original “Law and Order” constantly called trying to be “helpful.” They were monitoring my accounts. I dropped both firms years ago when better and cheaper alternatives became available. If Merrill’s computers scan online traders’ accounts for potential full-service customers, the annoyance factor could be unbearable. Also, no one likes big brother monitoring their bad trades or their diversification.

Now that we covered the need to escape the potential smothering of Merrill’s farm club, let’s move on to the technology. Merrill Edge has put a much prettier face on the original Bank of America brokerage system. Techies call that a skin, because it’s only skin deep. Do you think the Apple (NASDAQ:AAPL) iPhone/iPad generation will become believers? While most of the “technology” pushed by the top online brokers has little practical value for most investors, no one should doubt that we are in a real time world. Streaming quotes and charts should be the minimum entrance requirement. Every creditable firm offers a trading platform; Merrill Edge does not.

Merrill Edge, stuck in the website generation, is suffering from the General Motors syndrome: don’t offer Cadillac technology in a Chevy - make the customer pay up. Dedicated online brokers don’t have to worry about protecting financial advisors; everyone has access to the best technology. Until Merrill Lynch gives up this fear, they will have trouble attracting the next generation of investors. While Merrill professes to be advisors to the wealthy, the majority of their clients might die off like the Mercury Marquis.

Astonishingly, even Buick is showing promise of breaking the GM mold, so there is hope that Merrill Lynch could see the light. But for now Merrill is looking to give seniors a boulevard ride.

I’m not quite ready to “swap my ride” for Merrill Edge and have the “thundering herd” on my ass.

Disclosure: Author is long BAC.

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