It’s been a year since Merrill Lynch shook up the industry and launched discounter Merrill Lynch Direct.
What’s been the result?
The firm won’t say exactly. Merrill won’t disclose the number of accounts or amount of customer assets held by its online discount unit.
But John Michel, first vice president and senior director of Merrill Lynch Direct, tells RR
that "roughly 35% of our business appears to be current Merrill Lynch clients, and more than two-thirds [of the 35%] say that their FCs recommended" they open Direct accounts.
Michel adds that the 35% figure might have missed some existing clients depending on how the accounts were coded. About 60% of Direct customers are new to online investing. Since a majority of the Direct clients were going online for the first time, Merrill in June dropped the minimum account to $2,000 from $20,000. The firm felt that a $20,000 hurdle kept people from testing the service.
Direct's average account size is around $100,000, Michel says, which has not changed even after the new minimum. About 30% to 40% are IRA accounts. Direct's business is concentrated in equities. Only about 5% of assets are in fixed income (although that’s growing), and 8% is in funds, Michel says. Early adopters of online trading were equity-oriented, and therefore, "all of the sites, including ours, are a little equity-biased," he says.
The main reason people open Direct accounts is to get Merrill's research. "Research is the No. 1 differentiating factor that they give us credit for," Michel says. "Roughly 71% of our clients who came online last month [in December] accessed a Merrill Lynch opinion at some point in the month." Looking at research is the No. 2 user activity behind checking account balances.
Direct's client base has also turned out to be “much more buy and hold" than the typical online discounters, Michel says. Direct clients, who pay $29.95 for an equity trade, execute an average of 20 trades a year. Michel says a lot of that is new money--“a new purchase versus selling this and buying that."
The discount unit hasn’t been too badly hit by the downturn in online trading because it is attracting more of a wealth-building than trading clientele, Michel says. "Our belief is that as wealth grows, some percentage will also have an FC relationship."
Coming Soon at Merrill
This year Merrill Lynch will offer more mutual fund information on its Direct site, including a new screening product that enables clients to actively sort funds, says John Michel, first vice president and senior director of Merrill Lynch Direct. As of mid-January, that tool was in a testing phase.
At press time, Michel says the firm was expected to launch its account aggregation service in February. The service consolidates customer financial information from different institutions onto one online statement (see September 2000 RR, Page 69). Merrill's aggregation service is named “My Financial Picture.”
Direct will also be adding interactive educational programs for clients in the second half of the year, Michel says. The firm is working with an outside vendor to put that program together.