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Merrill Lynch: Integrated Choice

Analyzing the strategy for Integrated Choice based below questions

Do you think that Merrill Lynch has moved at the appropriate speed in responding to market changes? How many think it was too slow? What is integrated choice? What is the strategy? What are the implications of Integrated choice? For clients? For financial consultants? For the Firm? What are the two or three significant actions that Merrill Lynch ought to take? What will be the future role of the financial consultant? How should Merrill Lynch organize itself in the future?

Preamble to the case

About Merrill Lynch & their services Customer Profile & Behavior Merrill Lynch Strategy Changing Market Conditions Impact on Merrill Lynch Need for a change in the strategy

About Merrill Lynch

Merrill Lynch is one of the worlds premier providers of wealth management, securities trading and sales, corporate finance and investment banking services. Founded by Charles Merrill in 1914 with a belief that Financial Markets should be accessible to everyone! Hence Merrill Lynch was often credited for bringing the WALL STREET to the MAIN STREET. Working with their clients as strategic partners creating and executing winning solutions Their unique differentiators were:
Wide network of 14000 financial advisors and 750 offices in U.S. Widest array of financial services & Products, sound advice and effective execution Global Partners Culture of Innovation

Merrill Lynch Services Portfolio in early 90s

Merrill Lynch Services Portfolio

Wealth Mgmt Group (U.S. Private Client)

Corporate and Institutional Client Group

Brokerage & Lending e.g.. Securities transaction on behalf of the clients

Asset Mgmt & Portfolio Services e.g..



Strategic Services

Customer Segmentation in early 90s

Do-It-Yourself Investors
Young, Tech savvy, mostly male, Focused on growth Prefer discount or e- brokerage over relationship with a full service firm

Consulting driven Investors

Risk averse and conservative, mostly women and retirees who sought investors advice for creating & managing their portfolio Sought expertise in financial planning and security of dealing with a professional advisor

Delegate Investors
Older mostly male investors who are not too involved in their personal finances, prefer to Delegate it to professional advisors Often have relationship with full service firms and mutual fund companies

Customer Profiling
Affluent individuals with investable assets of at least US$100,000 Priority Clients with at least US$250,000 Premier Priority Clients were generally higher level of affluence with greater than US$1 million in assets with greater use of products across the categories with at least US$100K in each assets, liabilities and transition Premier Plus were wealthy individuals who require specialized financial products and services. Household Existing Private Clients Potential U.S. Market

Premier Plus Premier Priority Clients

Priority Clients Other Household Relationships Group Employee Services Relationships

25 150
825 2500 2000

266 8864
10495 94577 27000

ALL THE THINGS TO SOME PEOPLE ( strategy) in early 90s

Target and meet the financial needs of current and prospective affluent customers which included individuals and small businesses by comprehensive & innovative solutions designed specifically to meet their financial problems Package products which provide convenience Emphasize on Planning Performance Personal Services

Q1. Justify Merrill Lynchs speed in responding to market changes, was it slow?

We dont think they were slow because

The company witnessed several events since its inception

Inception of the Company Great Depression Recovery from the Great Depression Introduction of CMA The Financial Service Industry began deregulation Launched Integrated choice model

1914 Late 1929 Late 1940s 1977 Through 1980s & 1990 1999

In spite of the rise of internet and enabling technologies Merrill Lynch preferred to wait and watch till the technology is stable, safe and well accepted by the investors; to the extent that it drives the business. After analyzing that the Technology and Price are driving the market, they adopted a methodical way to counter the situation in order to maintain their lead position.

Changing market Scenario

With players like Charles Schwab and few others who had introduced the Price war since May 1975 by reducing the agents commission by almost half compared to the full service firms, leveraged on the Internet and ventured in to online services The affluent were looking at internet s a medium for execution & transactions ant mere a source of information The investors were changing favoring e trading and discounts The competition was unique
The competitive lines between the full service firms and discount brokers were blurring making the competition not just tough but unique The full service firms were increasingly interested in discount brokers high net worth clients while likes of Charles Schwab were encroaching the clients of full service firms like Merrill Lynch

Until late 1990s Merrill Lynch was competing against Full service brokers such as Prudential Securities, Morgan Stanley Dean Witter banks The internet revolution gained momentum around late 1980s Early technology adopters like Charles Schwab grew and the clients became more affluent by leveraging: The product portfolio designed to benefit the investor Embracing the internet the services were convenient and competitive Hence the competition was three dimensional for Merrill Lynch Merrill Lynch charted out a methodical approach for Business Strategy Transformation

Business Strategy Transformation

In early 1998 the U.S. Private Clients executive committee formed task force to address the pressing issues of Technology & Price
Online Task Force Headed by Bob Brewster
Investigate if online offered a new opportunity to enhance Private Clients Service to the clients Delving into industry trends, client behavior and industry economics after conducting exhaustive online survey- Speaking to everyone Possible

Pricing Task Force - Headed by Jeff Bennet

Thoroughly evaluate all options of Product/price equation The pricing structure was not aligned with the value delivered to the client, execution was a component which was contributing to the premium price

Acquisition of D.E.Shaw Financial Technologies

This acquisition gave Merrill Lynch a cadre of experienced developers. This gave a tremendous boost to the companies technological capabilities and soon Merrill Lynch became the one of the 1st full service firms to offer online trading

What is integrated choice? What is the strategy?

The central theme of the model was right to choose the model based on the requirement. i.e.
The product they wanted The level of advice they wanted The way they want to transact their business

Based on the need clients could opt for a single or multiple accounts
ML Direct Direct Investor Services Client Financial Consultant Traditional Fee Based Relationship Fee Based Discretion

Integrated Choice Model by Merrill Lynch

About the Integrated choice model

The Integrated Choice strategy enabled Merrill Lynch to 1. seize the marketplace initiative 2. changed the financial services landscape 3. Mitigated the revenue risk. A cross-functional team evaluated alternative product and service structures and pricing, and constructed models to assess individual client behavior. The models showed that revenue at risk to Merrill Lynch ranged from $200 million to $1 billion. The Merrill Lynch Management Science Group worked with executive management and a special pricing task force to: Determine the total revenue at risk if the only clients choosing the new pricing options were those who would pay less to Merrill Lynch. Determine a more realistic revenue impact based on a client's likelihood of adopting one of the new services. Assess the revenue impact for various pricing schedules, minimum fee levels, product combinations, and product features. Assess the impact on each financial consultant and identify those who would be potentially most affected.

The implications of Integrated choice -for clients, for financial consultants and for the Firm
Engaging Clients
Educating them about the new model Engaging Establish a communication emphasizing in the desire to choose philosophy

Motivating Financial Consultants Preparing The Firm for the

Convincing them that the online world would stay Manage their commissions against the Negative impact of the new model Technical challenge- reacting and managing the surges associated with online volumes Failure to deliver would be risky Competitors to catch up before implementation of the model Retaining the talent and reinforcing their trust in the firm


Significant actions taken by Merrill Lynch

The programs were designed around 3 most important entities: Preparing for the Technological Leap Established IT organization with a huge IT budget and Team of external contractors to support Educating the employees about the new ways of business and using internet The Financial advisors & employees 3 phased communication plan to educate, engage and update the employees and financial advisors Launched a full court Press plan for the Financial Advisors to secure their long term earnings Clients & Prospects Comprehensive external communication plan using traditional media like media television and newspaper Internet based media was also used Use of direct mailers including clients statements

3 Phase Communication Plan

Phase I: Building the New Merrill Lynch To create understanding, awareness & excitement towards the new business model
Revamp the National Web Site as the prime source of information to Financial Advisors about the key initiatives

Phase II From Wall Street to Main Street to My Street Educating employees through the intranet WorldNet
The channel contained information about new business model, incorporated programs, & provided a vehicle for two way communication

Phase III Ongoing Communications Ongoing educational efforts providing information on new events related to the new business model

In conjunction with all these Town Hall, Walk Around, Business meetings and interactions with Senior management to create the excitement & commitment towards the new business model

How should Merrill Lynch organize itself in the future

Any implementation is the beginning of the Transformation.. The future of the Merrill Lynch doesnt depends merely on the successful implementation but on maintaining the adherence to the new business model by the employees, financial advisors on an ongoing basis and engaging with the customers in the new business model The company envisaged 3 challenges:
Motivating and retaining the biggest asset The financial Advisors Client Transition and seamless services Ease of operation / convenience Future Role of the Financial Advisors

Evolving role of the Financial consultant

The advisors were supported by the Client Associates who gave the necessary administrative support in servicing the clients The role needed to evolve to be a full service provider in all respects The enhanced financial advisor would continue to manage the relationship but also upgrades himself for offering other products like estate planning etc to the clients The entire sale process needs to evolve keeping ease of suggesting multiple products to the clients to suit his specific financial requirements Offer valued services to the customers by upgrading current transaction like providing account summary with metrics