Some Wonder Whether Merrill
Has Truly Embraced the Web
April 24, 2000
By DAVID SWEET
THE WALL STREET JOURNAL INTERACTIVE EDITION
Less than a year since Merrill Lynch made its first foray into online trading, analysts and investors are split as to whether the venerable firm has truly embraced the Web.
Merrill Lynch offers two flavors of online trading: Unlimited Advantage, launched in July, allows clients unlimited trades online or offline for a minimum annual fee of $1,500, while Merrill Lynch Direct charges $29.95 per trade.
Merrill Lynch Online
www.mlol.ml.com
Merrill Lynch Direct
www.mldirect.ml.com
Unlimited Advantage, a component of Merrill Lynch Online, saw client assets jump 40% in the first quarter to $88 billion. Merrill Lynch Direct, which was unveiled in December, holds more than $2 billion in investor assets, up from $300 million at year-end.
"[Merrill's move online] has been a success for sure," says Ron Shevlin, a research director at Forrester Research, whose firm ranks Merrill the second-best online brokerage in terms of quality, behind only Charles Schwab. "What they've been offering is top quality."
But despite the gains, Merrill remains a minor player in the online-trading industry. According to a Piper Jaffray report released in January, Fidelity Investments, Schwab and E*Trade Group possess more than 70% of the Web brokerage accounts in the U.S. E*Trade alone added more than 600,000 accounts in the first quarter of 2000, about 40 times as many as Merrill Lynch Direct's 16,000 total through March.
"16,000 accounts is rather pathetic," says Stephen Franco, a senior research analyst at U.S. Bancorp Piper Jaffray in San Francisco. "I'm not convinced Merrill will have success with this product. It's not their heritage."
Indeed, by plunging into discount online trading, Merrill basically changed a decades-old strategy centered on a "full-service" relationship between brokers and their clients, who paid hundreds of dollars to buy or sell stocks and to receive advice.
"If everyone moved to the self-directed brokerage [Merrill Lynch Direct], that wouldn't be good for the company. You don't know how much they really want it to succeed," says Greg Smith, senior research analyst at Chase H&Q in San Francisco, who notes Merrill has barely marketed its online-trading services. "I still think the company has a challenge in having a foot in both camps."
Clients most often use Unlimited Advantage to view their account information. Customer Mary Stevenson wishes the firm were more timely in that area, especially with the Web's real-time capabilities.
"I pull up the account at 7 a.m. [EDT] to see activity for yesterday, and it's not updated yet," she says. "That's not the best considering the market opens at 9:30."
Merrill spokeswoman Susan Thomson says updated account information from the previous day is being phased in for all customers, adding that new client accounts possess the feature.
Merrill Plan Lures Big Bucks, But Mostly From Own Clients (Jan. 25)
Merrill Faces a Challenge With Online Trading Effort (Nov. 4)
As Merrill Moves Online, Some Brokers Jump Ship (Sept. 15)
Merrill Says Brokers May Play Down New Discount Online-Trading Service (July 13)
Wall Street Is Rocked By Merrill's Online Plans (June 2)
Facing Internet Threat, Merrill Plans To Offer Trading Online for Low Fees (June 1)
Consultations with brokers are not part of the Merrill Lynch Direct package. But like clients of Unlimited Advantage, Merrill Lynch Direct customers have access to initial public offerings, real-time quotes and can call up Merrill research reports and analysis.
Says Ms. Thomson, "There's a plain-vanilla view that [the Web] is a world of stock trading. We don't see it that way."
Unlimited Advantage offers commission-free trading online and off. (Ironically, one cannot sign up via the Web.) Distinguishing itself from discount firms such as Ameritrade Holding, clients can solicit advice from Merrill brokers via phone or e-mail.
And with recent market volatility -- four days after witnessing its largest point drop, the Nasdaq Composite Index enjoyed its biggest jump April 18 -- brokers are increasingly hailed.
"My broker is my guardian angel," says Connie Nicolosi, an Unlimited Advantage client with a six-figure portfolio who used to trade on her own. "He's right all the time."
Ms. Nicolosi enjoys the buffet of online features -- especially the research capabilities. "Whatever stocks I'm tracking, I check Merrill Lynch's position," says the Rhode Island resident, who still trades more offline than online.
In fact, though an injection of $88 billion in assets into a nine-month-old program is large, Merrill doesn't break out numbers in terms of how many of these clients trade online (they can also phone orders in or request a trade in person). What's certain is online trading is not among the top four reasons to visit Unlimited Advantage, according to Merrill's research. Viewing one's account, checking the market, conducting research and looking at news are the most popular features.
"We're not measuring the success of the program as whether clients do the business online or offline," says Ms. Thomson. "What's most compelling is the model we espoused, the perfect blend between human beings and technology."
Merrill won't say how many of its online trading accounts have been opened by existing customers. But Forrester's Mr. Shevlin estimates the number is between 80% and 90%.
"They already had a good relationship with Merrill, period," he says. "Is Merrill cannibalizing a high-cost trade for a low-cost trade? Yes. But the important point is they've retained their customers."
Write to David Sweet at david.sweet@wsj.com |
