Case Study-2

Merrill Lynch: Supernova

Submitted to:
Dr. Razia Begum
Professor
Department of Marketing
Faculty of Business Studies
University of Dhaka

Submitted by:
Group-2
Section: A
Class: MBA
Department of Marketing
Faculty of Business Studies
University of Dhaka

Date of Submission: 22 August, 2019

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Profile

Group – 2

Name Roll
Afrajur Arfin Dipu 27
Arif Uz Zaman Khan 28
Rita Akter 30
Sazzadur Rahman 33
Robaed Razin Mahmod 36
Shakil Ahmed Faysal 37
Tasnova Khandoker 39
Nirmol Kumar Biswas 40
Khondaker Zannatul Ferdous 42
Farjana Islam Shoshi 43
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Table of Contents

SL Description Page no.

1 Introduction 4
2 What is Supernova? 4-7
3 Situation Analysis 7
4 Process of Adopting Supernova 8
5 Challenges in Implementation 8-9
6 Strengths & Weaknesses 9-10
7 Competitive Analysis 10
8 Recommendations 10-11
9 Conclusion 11
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Introduction
Merrill Lynch was a prominent independent brokerage house at 7 Wall Street and founded by
Charles E. Merrill in the year 1907 where the company rapidly grew in the financial market. By the
end of 1970 s, Merrill Lynch became one of the most powerful investments banking force along
with retail brokerage. Moreover, in the year 2000, the company described itself as “the finest
financial management and advisory company that serves the institutions, governments and investors
around the globe.
By the end of 2003, the company became of the leading financial service firms and it also became
the largest broker dealer form on the Wall Street. Moreover, Merrill Lynch has the highest number
of financial advisors than any other company in the industry, which confirms the success of the
firm.
In 2008-2009, the company was acquired by the Bank of America, and it is now known as Merrill
Lynch Wealth Management. It handles over $1.2 trillion in assets from clients in countries world-
wide.

In 2010, Bank of America began supplanting the Merrill Lynch Core Principles with its own set of
Core Values. These are:
a) Trusting and Teamwork
b) Inclusive Meritocracy
c) Winning
d) Leadership
e) Doing the Right Thing
Furthermore, the case depicts the situation where Merrill Lynch has introduced a new client
relationship technique, which is called the Supernova at the Merrill Lynch Indianapolis branches.
Since the company has been quite a revolution in the financial advisory market, therefore, it
launched Supernova on trial basis in Indianapolis offices to analyze the response of the customers
and the financial advisors simultaneously.

What is Supernova?
Supernova was introduced by Rob Knapp who has been the head of Mid West District office where
the customer satisfaction was ranked last amongst the 32 districts where Merrill Lynch has been
operating. However, in the next eighteen months, the district was ranked fourth after it implemented
Supernova within the company. Supernova has provides services to the client, client acquisition and
also a practice management model that has been driving an explosive acceleration in terms of
revenue and the overall client satisfaction where the plan has capitalized upon the business rule
which is 80-20.
The model serves a small number of customers or clients rather than focusing on increasing number
of clients every day. This has been the true essence of Supernova, which has helped the company to
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serve a specific number of clients by providing them complete support in all aspects. Through
Supernova, the management could now find the right solution for its clients by transferring the right
information at the right time regrind the range of the investment packages of the company.
Prior to the induction of Supernova at the company, the financial advisors hardly met the clients,
contacted them or even solved their problems. However, with the introduction of Supernova, the
client got the opportunity to talk with the financial advisor at least twelve times a year.

Why Supernova?

Merrill Lynch is basically an advisory and financial management company. The company serves a
broad range of customers including investors, institution and the government around the world. It
was one of the largest broker dealer firms on Wall Street and also the largest financial services firm
in the world. The client base of the company was large with around 550 clients per each of the
financial advisor and as a result, it became very difficult to contact each and every client of the
company by a single financial advisor. Furthermore, the meeting was not properly constructed and it
resulted in the non-delivery of the information and shortage of time to contact from one end to
another. As a result of these problems, an innovation was named with the name Supernova.

Object of Supernova
Object of Supernova was to maintain a meaningful relationship with customers through quality and
frequent contact with the clients by Financial advisors of the firm. Another object is to retain the
clients who the FAs can serve best thus ensuring ultimate customer satisfaction.

12-4-2 Client’s Minimum Annual Contact

12-4-2 was the Supernova description of what clients’ minimum annual contact with their financial
advisor should be.
• 12 monthly contacts to stay in touch and ask for updates on financial goals and changes in needs.
• Of these 12 contacts 4 were portfolio reviews where the financial advisor will discuss the overall
strengths and weaknesses of the client’s portfolio.
• And another 2 should be face to face meeting with that client.

Problems for FA:

Large Client Base- on average each Financial Advisor at Merrill Lynch had 550 clients in their
books. It was due to the fact that, in the brokerage industry, they assumed that, the bigger the book
the better stockbroker.
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Not Organized- the client list in the books of the stockbrokers in the Merrill Lynch was not
organized. So that, there was no way for the stockbroker to tell the client who is actually profitable
for him and who is not.
Time Constraints: It was estimated that each FA would require 72 hours a week to meet the
contact requirements for successfully implement Supernova if each has 550 clients under their
books. This amount of time in a week is practically impossible to allot.

Changes in Supernova
While 12-4-2 was a breakthrough from the clients’ perspective, it posed a dilemma for the FAs who
wanted to implement it, there were too few hours in a day to deliver even a fraction of 12-4-2
because the average Merrill FA had 550 clients. As a result the way Fas planning to adopt 12-4-2
conducted their business had to change. The changes ultimately becoming a part of Supernova.
These changes were:
1. Segmentation
2. Organization and
3. Acquisition.

Segmentation
• Knapp believed that the appropriate number of clients was 200 based on an analysis he conducted.
In that analysis he showed that, this way the FAs will have to spend only 26 hours a week to
implement the 12-4-2 principle for their clients.
• Another requirement he set was that, each client should have at least $1 million in annuitized
assets at Merrill or $10,000 in annual production (fees from trading).
• Choice of clients through spreadsheet model-the decision to keep or forgo a client was complex.
Fortunately, an FA developed an spreadsheet model to help other FAs in the process. Developing the
model took 11 months, however, once the model was completed an FA could conduct the analysis in
approximately 30 minutes.
• What about other clients-Clients whom an FA decided not to keep were given to another FA or
were sent to the Financial Advisory Center, Merrill’s centralized facility for smaller accounts, if
their assets with Merrill totaled less than $100,000 and were unlikely increase in the foreseeable
future. The center served these accounts through a toll- free telephone number and pro-actively
called them at least four times a year to ensure that their needs were being met.

Organization
FA organized his or her practice in whatever way he or she thought best. Supernova did not require
an FA to adopt a particular organization scheme, but it did provide tools that many Supernova FAs
found useful. Merrill studies of FA desires indicated that what they wanted most was ''more
administrative support'', followed closely by "help getting organized."
One of the biggest organizational problems FAs encountered involved using their time effectively.
Day to day, this meant delegating routine, administrative tasks to their administrative assistants,
called clients associates.
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The Supernova Service Promise

Commitment to developing a financial plan for every client and 12-4-2, coupled with (1)
segmentation and (2) organization, enabled Supernova FAs to make the following service promise
to their clients:
You are guaranteed three things.
1. You will have a multi-generation financial plan in place.
2. You will be contacted by your FA at least 12 times every year.
3. You will receive rapid response to any problem you may have, heating from us withing 1 hour,
and having resolution withing 24.

Acquisition
The final part of Supernova was called “acquisition.” As suggested by Knapp’ s suit analogy, each
year a Supernova FA would acquire some new, high-quality clients, handing the least promising
clients displaced by the new clients to another FA, or the Financial Advisory Center.

Firstly, FAs segmented their client books and gave up all but top 200 and committed to 12-4-2. It
decreased the client turnover dramatically.
Secondly, FAs found that the best way to get new clients is through existing clients. Satisfied clients
recommended to their friends and relatives.
Many FAs found that referrals were their best source of new business. A number used their spare
time to specialize in financial products of interest to their clients and potential clients.

Situation Analysis
The situation that has been presented in the case depicts the fact that the company is considering
taking a decision on implementing Supernova across all the offices operating in the country by
Merrill Lynch.
The company has been quite successful with its implementation of Supernova in Indianapolis,
which was ranked number 32 prior to installing Supernova. With the successful implementation of
Supernova at Indianapolis, the company needs to decide whether it is a feasible enough option to be
implemented countrywide.
The major stakeholders in the company are the clients, and the financial advisors who have been the
key component for Merrill Lynch. The company lies in the pure service quadrant under the goods-
service continuum. Moreover, the company offers intangible dominants.
Along with this, the service characteristics that are offered by Merrill Lynch to the clients in the
financial investment industry are basically providing the clients with the opportunity to purchase
financial products from the market that can earn reasonable returns to the clients. Moreover, the
company also offers after sales service in terms of meeting with the clients on bi annual basis to
resolve customer queries and resolve issues simultaneously.
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Process of Adopting Supernova

 Supernova had been spread through road-show presentations made by users(Financial
Advisors) who were enthusiastic about what program had done for them, their client
associates and their clients.
 Knapp often used a two part pitch to sell Supernova to potential adopters:

1. Describing how good it felt to be delivering “The Ultimate Client Experience’’ .

2. Describing Supernova as ‘Plan, Process and Discipline’.
 Support for Fas for adopting Supernova:

1. The first step in supernova adoption was called ‘FA buy-in’. Road shows alone did not
ensure buy-in. Because skeptics are everywhere, which can be a good thing. The managers
encouraged the skeptics FAs to question their existing practices by engaging them in the
80/20 rule point by point. These groups that challenged Supernova were often the teams that
ultimately did the best with it. That’s because they understood the untested ideas well. And
the testing begins with the sharp questions like how much he she would like to be earning in
a few years.
2. The second step in Supernova adoption was Segmentation. After that was accomplished,
financial planning, 12-4-2, organization and acquisition were introduced. However,
segmentation was often the most difficult to implement. For this, they developed
segmentation software.

Challenges in Implementation
Jim Walker reviewed data on Supernova results to date and projections for the future. He identified
some challenges to encounter to go forward. These are:
1. Economic backdrop: In 2003, the economic depression made people in the industry tensed
and directed the attention of Merrill’s top managers to immediate issues such as meeting
earnings projections. Basically it motivated them to drive change in the strategy.
2. Politics and recognition: Supernova was seen as the child of its founders. Those in the
firm who liked its founders tended to like it. Those with mixed feelings about its founders
tended to be less positive. Professional jealousy also have played a role in negative
reactions. Recognition or rewards might exacerbate this situation.
3. Follow up/support: Not all FAs followed the road shows or presentations. Only 2000 had
completely adopted Supernova and another 4000 had partially adopted Supernova. These
FAs posed several risks. First, they jeopardized the Supernova ‘brand’. Second, Supernova
advocates agreed that a failure to adopt Supernova properly may harm the quality work life.
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4. Client expectation: Many Supernova FAs believed that after clients became accustomed
to supernova, their expectations for service rose dramatically. This situation created a
problem in measuring customer satisfaction when comparing non-Supernova clients with
Supernova clients. It also created a problem when service promises were made to clients by
FAs who intended to fully adopt Supernova, but never completely implemented the
program.
5. Changing roles: Supernova FAs noted that they preferred this new role because it enabled
them to provide consultative service, examining risk relative to reward as opposed to selling
a product.
6. Misinterpretation: Many FAs suggested for ‘Supernova Software’. It will make good
Supernova FAs even better but it is only one piece of a complex solution.
7. Client Associates: Even though client associates were essential to Supernova’s working
effectively, most FAs made the decision to adopt it or not, without involving their
administrative assistants.

Strengths & Weaknesses

 Strengths of Supernova adoption

1. Proper work distribution: As it was quite tough for the FA to deliver services to present
customers and finding new investment at the same time. So, FA only delivers service to
clients and supernova contact those clients. Therefore work is properly distributed between
FA and Supernova.
2. Excellent customer service using 12-4-2: this service is based on studies conducted
within and outside of Merrill on client studies. It forces FA to make the contacts at a
minimum numbers and they must not get any excuses to avoid service delivery.
3. Organized working environment: As the work was distributed between FA and
Supernova so they can perform their job in a disciplined way. They do their work according
to routine. Therefore no conflicts were shown within Merrill.
4. Segmentation of clients: In Merrill, every FA adopted Supernova to set a goal per FA of
200 clients. The decision to keep a client is complex. FA developed a spreadsheet model to
keep only top 100 clients. Most Supernova FAs segmented their book to-
f) 200 primary client
g) Important family or business associates.
h) Most important clients necessary to keep.

 Weaknesses of Supernova adoption

1. Dependence on limited customer: Segmenting the client base, Merrill usually depends on
limited customer for revenue generation. This dependence may be the threat to profit.
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2. Increased client expectations: Whenever clients are categorized as important or most

important, it increased their expectation. Though Supernova FA provides those best services,
they may often be dissatisfied.
3. FA freedom decreased: Supernova mange client relationship. They contact with existing
clients of FA besides finding new clients. That may lead FA to dissatisfaction in their work
life.
4. Forced acquisition problem: Supernova FAs found that their greatest problem was to
force themselves to become actively involved in client acquisition once the initial disruption
caused by converting to Supernova was over.
5. Golf Problem: Some senior managers believed that the “golf problem” was .serious
because while FAs adopting Supernova very effectively experienced an immediate increase
in compensation, the average new Supernova adopter saw an initial small reduction in pay.

Competitive analysis
Merrill Lynch competitors include South State Corporation, Goldman Sachs, The Vanguard Group,
Morgan Stanley and UBS. Merrill Lynch ranks 2nd in Overall Culture Score on Comparably vs its
competitors. Merrill Lynch became more successful than other companies because it relied on a
highly professional staff(Financial advisors). And human resources are the most valuable asset a
company can have. It had shown ability to conduct study groups and come up with appropriate
solution to be on top of market. It identified its customer segment groups and developed products
and services for each of them, being price competitive at the same time. Therefore it really served
its scope: to be a full service brokerage, a one-stop shop where everyone can find the product or
service that desires.

Recommendations
 Customer focus initiative
Merrill Lynch is required to adopt Supernova as a new way to manage client relationships for
excellent customer service with the objective of creating ultimate client experiences.
 Customer satisfaction tracking
They are suggested to track customer satisfaction level by using 12-4-2 formula which implies 12-
month contact, 4 portfolio reviews and 2 face to face meeting with the clients.
 Customer retention initiatives
The best retention technique for Merrill Lynch will be the use of Supernova Model which will
facilitate continuous financial services to the clients.
 Service delivers design change
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Merrill Lynch is also required to standardize their services through updated financial advises by
emphasizing empathy to the core clients and to provide more administrative support to their
financial advisors.
 Customer understanding and service process
Merrill Lynch needs to improve its customer understanding by adopting “Folder System” which
explains the financial plan and service delivery process with both the client and the financial
advisor.
 Branding initiatives
Finally, Merrill Lynch is suggested to put extra focus on the branding activities by promoting the
strategy of Supernova which is the main point of difference than other financial service
organizations.

Conclusion

Merrill Lynch was one of the leading financial services firms in the world. It was the largest
“Broker Dealer” and employing more financial advisors than any of its competitor. But the market
begun to change and new firms entered the market with different services. So, Merrill Lynch came
up with a new idea in the name of "Supernova". It was a new way to manage client relationship in a
better way. The Concept of "Supernova" was to create the ultimate client experience by making
frequently and quality of contact, rapid response to problem and attention to details. This concept
also brought "12-4-2" strategy by which FAs continuously contacted with their clients. This plan
could be described by segmenting the client in different rank, organizing the process and acquiring
new client by displaying old one. So Merrill Lynch was trying to encourage their FAs to adopt
"Supernova". But the company should concern to some barriers like economic backdrops, client
expectations, FAs natures and organizational leverage points before implementing "Supernova”.