ASSET MANAGEMENT
"The do-it-yourself model of investing, centered on Internet trading, should be regarded as a serious threat to Americans' financial lives." That was Merrill Lynch vice chair John "Launny" Steffens' 1998 take on the revolution his firm had decided to sleep through. But last June, the full-service giant emerged from its Net-proof bunker to announce that the threat of ignorant retail investors losing their retirement savings wasn't nearly as worrisome as that of Merrill itself ceding a potentially dominant position among ebrokerages. Turns out Merrill's arrival online coincides with an all-out financial services war.
The new Merrill Lynch Direct set its prices high - $20,000 opening balance, $29.95 for trades of up to 1,000 shares - but adds little more value than access to research. Still, in Q4 1999 it drew $36 billion in new assets, surpassing by $3 billion the funds pulled in by discount king Charles Schwab. Merrill's customer assets now amount to $1.7 trillion, compared with Schwab's $725 billion and E*Trade's $44 billion. In the online arena, the lumbering giant has hit stride quickly.
Virtually all of Merrill's e-growth, however, reflects old customers signing up for new services, according to James Marks, online financial services analyst for Credit Suisse First Boston. The real battle, he says, is not for the Net but for overall consumer savings. The Financial Services Modernization Act of 1999, instituted last November, allows US securities firms, insurers, and banks to merge. Now financial firms of all kinds are scrambling for the spoils: deposits to credit unions, thrifts, banks, brokerages, mutual funds, and insurance companies. In January Schwab acquired US Trust, while E*Trade bought Telebanc Financial. Merrill countered in February by offering its investment customers federally insured savings accounts.
In the emerging world of integrated financial services, Merrill's 700 brick-and-mortar locations in the US will give it an edge. However, Schwab is formidable, with 300-plus branch offices and an array of services aimed not only at its traditional discount customers, but also at high-net-worth investors who formerly graduated to Merrill, Goldman Sachs, or Morgan Stanley. Will E*Trade and the other Net-only brokerages fall by the sword of these Goliaths? Or will they be acquired by banks looking to get into the securities business? Regardless, for the time being they offer a simple value proposition that the more service-oriented brokerages are unlikely to match: extremely inexpensive access to the market.
- Dan Brekke (brekke@well.com)
Merrill Lynch:www.merrilllynch.com.
NEW MONEY
Financial Services Monster Mash
Skinner Bucks
Virtue Capital Gains
Webjacked
