There’s been a lot of speculation about what or what not Merrill Lynch (now owned by Bank of United States of America) intends to do with its re-launch of Edge, Merrill’s online brokerage offering. Here’s a quick summary of what was punted around post-announcement:
MorganStanley: We do not view Bank of America/Merrill Lynch’s new online brokerage product, Merrill Edge, as a serious competitor near to medium-term to Schwab and TD Ameritrade. Bank of America and Wells Fargo/Wachovia have had online brokerage products for some time and they haven’t impacted TD Ameritrade and Schwab’s ability to grow assets – clients choose to use one product over another and don’t easily switch. — Analyst, Celeste Mellet-Brown
FBR Capital Markets: Bank of America will need to invest hundreds of millions in technology, customer support, and branding to truly compete for new customer assets. — Analyst, Matt Snowling
Raymond James: It’s “highly unlikely” that Merrill Edge will cause a significant number of existing clients to leave Schwab, TD Ameritrade or E*Trade. We believe this is simply a re-branding of Bank of America’s existing online brokerage .– Analyst, Patrick O’Shaughnessy
RIABiz: Such access could take the form of a team of advisors who handle inquiries up to some form of a hand-off plan where customers being handled by call centers could get referred to a full-service broker as their assets grow and their needs for advice become more sophisticated. In this hand-off endeavor, Merrill Lynch could have – in one respect – an edge over Fidelity, TD and Schwab, which have been successfully handing off billion of dollars of assets from their branches to RIAs for several years.
Registered Rep: The idea is to convince current clients to give them the “play” money they have parked at the discounters, which can amount to substantial sums, and to capture the hearts and minds of young people who have yet to amass their wealth. We’re talking serious dollars here. At stake is a coming intergenerational transfer of wealth—the evolving wealth of today’s 87 million-strong, 20-something “millennial” population, born between 1979 and 1999. This wealth is projected to grow from $172 billion today to a staggering $13.4 trillion in investable assets (liabilities reaching a shocking $16.2 trillion) by 2030, according to internal Merrill research.
My Take
All of the reasons that Merrill Edge shouldn’t work (technology and service investments, channel conflict with Merrill’s financial advisors, incumbent leadership) are valid. Merrill’s 15,000 member strong advisory unit is/was a driving force for the firm and many of them view this launch as a threat to their core businesses.
But here’s the thing: I’ve written repeatedly that wealthy and soon-to-be-wealthy investors employ a combination of full-service and do-it-yourself investment tools. In fact, many of the brokerages are courting these types of investors with automated, professional-grade services, like E*Trade’s Online Advisor. As the future unfurls, these types of investors will continue to use tools and services that satiate the comfort of control and the need for professional advice. Merrill Edge plays right into this.
This isn’t about getting a $25k minimum account and praying the account holder brings more. It’s a foothold, but it’s also a way to hold onto wealthy clients with a lot more money under management as they oscillate moving their funds in into and out of semi self-directed tools and professional money managers. Edge gives that money one home.
I was getting a lot of inquiries from readers/subscribers who’ve asked me to summarize my new book, Tradestreaming – what it is, how it’s a natural evolution of all the investment trends that didn’t work in hindsight, how it helps investors make better, more informed, decisions. Essentially, Tradestreaming is the implementation of the New Rules of Investing.
I like high-level ideas, especially ones that look at industry trends. One of the best sources of these ideas for investors requires going directly to recent/upcoming IPO filings (S-1) at the SEC website. Companies write this stuff themselves to raise money — who should know or understand better about an industry than the market participants?
So, the recent float of asset management technology/network firm, Envestnet (NYSE:ENV) should tell us a lot about what’s going on in the investment management industry and the companies that service it. Envestnet’s pre-IPO filings have great information.
Additionally, recent financial services/technology IPOs like SS&C ($SSNC), Financial Engines ($FNGN) and Green Dot ($GDOT) have all traded up more than 10% since their IPOs.
Here’s are the 5 wealth management trends Envestnet says is driving its business:
Increased prevalence of independent financial advisors. percentage of financial advisors have elected to leave large financial institutions and start their own financial advisory practices or move to smaller, more independent firms. We believe this trend was accelerated in the past two to three years as a result of the reputational harm suffered by several of the largest financial institutions during the recent financial crisis. In particular, according to Cerulli Associates, an estimated 44% of financial advisors were considered independent in 2009, compared to 41% as of 2005, and Cerulli Associates projects that 50% of financial advisors will be independent by the end of 2012.
Increased reliance on technology among independent financial advisors.In order to compete effectively in the marketplace, independent financial advisors are increasingly relying on technology service providers to help them provide comparable services cost effectively and efficiently, according to Cerulli Associates. For example, an advanced platform technology with fully integrated tools helps reduce the need for the manual processing of data and the use of multiple incompatible technology applications, allowing financial advisors to spend more time interfacing with their clients, while also potentially allowing the financial advisor to reduce technology-related costs.
Increased use of financial advisors. We believe that the recent significant volatility and increasing complexity in securities markets has resulted in increased investor interest in receiving professional financial advisory services. According to Cerulli Associates, the percentage of households investing through a financial advisor increased from 50% to 58% from August 2008 to June 2009.
Increased use of fee-based investment solutions. In order for financial advisors to effectively manage their clients’ assets, we believe they are seeking account types that offer the flexibility to choose among the widest range of investment solutions. Financial advisors typically charge their clients fees for these types of flexible accounts based on a percentage of assets rather than on a commission or other basis. According to Cerulli Associates, the percentage of commission-only financial advisors declined from 18% in 2003 to 12% in 2008. We believe that financial advisors will increasingly require a sophisticated technology platform to support their ability to address their clients’ needs.
More stringent standards applicable to financial advisors. In light of the economic crisis and related securities market volatility in 2008 and 2009, we believe that there will be increased attention on investor consumer protection, whether as a result of regulatory changes, voluntary industry initiatives or competitive dynamics. Increased scrutiny of financial advisors to ensure compliance with current laws, coupled with the possibility of new laws focused on a fiduciary standard, may require changes to the way financial advisors offer advice. In order to adapt to these changes, we believe that financial advisors will benefit from utilizing a technology platform, such as ours, that allows them to address their clients’ wealth management needs, manage and memorialize decisions made throughout the process, and that assists them with recordkeeping and account monitoring.
This post originally appeared on Tradestreaming.com, the site for my new book and where I will be posting primarily about consumer financial. New Rules will begin to take more of a financial industry bent to it.
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===>>> IMPORTANT NOTE: please check out Tradestreaming.com — the site for my new book (launching soon). Please sign up via email and/or RSS to stay plugged in to this conversation. I’m going to begin migrating my blogging activities to that site as time unfurls (or furls, means the same). [...]
or understand better about an industry than the market participants?
