Bank of America is making a push into electronic brokerage services, a menu that includes free online trading and a new platform called Merrill Edge, set to debut in late June. Some say the new services will steal business from Merrill advisors.
Merrill Edge combines Bank of America’s online brokerage, Merrill Lynch’s retail web services and Merrill’s call center to serve investors with accounts that have less than $250,000 in assets. The rollout follows the introduction by Bank of America last October of commission-free online equity trades—30 monthly for customers who have combined account balances of $25,000 or more.
The online platform at Bank of America could “cannibalize” the clients of a core constituency of Merrill brokers who might otherwise provide them with advice, said Alois Pirker, an analyst at Aite Group. Pirker added that offering free online trading is not an unusual move in today’s brokerage industry.
The electronic ramp-up is no surprise given the industry’s embrace of the self-directed investor, one Merrill FA told Registered Rep. However, it could disproportionately hurt the several thousand former Bank of America brokers who are now part of Merrill Lynch. He said some of these former brokers have as many as 1,400 clients, compared with one or two hundred for the typical Merrill broker. Now these brokers are under pressure to dramatically reduce their customer lists, he says. “It’s practically impossible to effectively service 1,400,” he said. Presumably, they would funnel the clients they culled from their books into the online program.
Of course, Bank of America says no such thing is happening. The firm is neither pressuring advisors to give up their accounts with under $250,000 in assets, nor are they pressuring advisors to give qualifying clients commission-free stock trading, says spokesperson Selena Morris. “We are committed to providing clients with quality services that meet their financial goals and needs,” says Morris. “As always, our clients retain full flexibility and choice on the type of relationship they have with us. Merrill Edge will generally serve clients with a combined banking and investment relationship of less than $250,000, as well as clients across the entire wealth spectrum who choose to be served in part, or entirely, through this direct channel."
Bank of America executives didn’t directly address whether FAs might still lose clients to the new service. “We have 16,000 FAs and some of them are going to be nervous and say this is taking [customers] away from us,” said one Bank of America official, referring to the introduction of Merrill Edge. “I don’t think that is the way to look at it.” This official said she had not heard any dissatisfaction expressed by FAs over the introduction of the free online trading program back in October.
Norm Pappous, a former Merrill Lynch FA, said he had just spoken to some of his former colleagues. “They knew nothing about the [free online trading] program, which leads me to believe that BofA will use it as more of their mass marketing and servicing approach, rather than using it as a tool for Merrill pros to gather more assets,” said Pappous, president of online financial services firm Investment Performance Evaluations.
“That’s a pity,” he added. “If they had brought the program through the FAs and allowed them to use it for potential or current clients, I think it could have been a great tool. BofA seems committed to mass servicing and restricting Merrill guys to $1 million-plus accounts. This will make it tougher for FAs to succeed.”
Morris said that the bank is not attempting to undermine FAs with its new electronic services. On Merrill Edge, she said, “[It] is designed to complement our current offerings, providing products and services that create exciting opportunities for our advisory business and new demand for Merrill Lynch services by the next generation of affluent individuals. She added that having, “a robust direct offering is also beneficial as clients with both self-directed and full service accounts grow assets.”