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Case 2-*

Case

Merrill Lynch: Supernova

McGraw-Hill/Irwin

Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Objectives for Case 2:


Merrill Lynch Supernova

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To assess the challenges of implementing a new service model in a


professional financial services business
revenue focus profit focus
transaction focus relationship focus
product focus customer and service focus

To analyze the value of a segmented, customer-focused approach to


account management
What is the customer value proposition?
What is the employee value proposition?
What is the value for the firm?

To assess the tradeoffs in a national roll-out vs. a more incremental


strategy
To highlight the challenges of cultural change for autonomous
professional service providers.

Stockbrokerages and
Stockbrokers/Financial Advisors

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Market Share for Traditional (full-line)


Brokers and Discounters

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Merrill Lynch Private Client Group Field


Organization Structure

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12 - 4 - 2 and the Need to Segment

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Case Analysis Group Discussion


What is Supernovas value proposition:
For clients?
For financial advisors?

How does Supernova work, and what


are some of the challenges in
implementing it?
Should senior management proceed
with a national implementation or a less
aggressive incremental roll-out of
Supernova, and how?

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ML: Supernova Case Situation


The industry environment includes both discount and traditional brokers
Traditional, full-line brokers are declining in industry market share
Discounters are increasing in industry market share

Merrill Lynch is experimenting with a new approach to managing client


accounts Supernova
Supernova represents a major change in philosophy and approach to
managing accounts focused on relationship and long-term profitability
rather than acquisition and immediate revenues
Jim Walker, Managing Director and Chief Administrative Officer of
Merrill Lynchs Client Relationship Group is deciding whether to
recommend a national roll out of Supernova

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ML: Supernova Case Situation


What Does Supernova Potentially Offer to ML?
increased client loyalty/satisfaction
increased revenues and profits
1% increase in revenues for Supernova accounts compared to 6%
decrease for comparison group

decreased market errors


54% decline with Supernova accounts

reversal of FA churn if quality of life and income improve as


predicted

Does Merrill Lynch need Supernova?


need to compete in a declining market

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Traditional Approach Compared to Supernova


Approach to Account Management
Traditional

Supernova

Chaotic, fast-paced and crisis driven

Organized and process driven

Inconsistency in how clients are


handled and frequency of meetings

Client relationships are predictable;


focus on ideal customer experience

Purely variable compensation for FAs

Income based on profitability of


customer mix

Focus on client acquisition and size of


book

Relationship focused to build profits


over time

550 clients per FA

200 clients per FA

Focus on new accounts

Focus on service and client retention

FAs are gifted salespeople

FAs are gifted relationship managers

Autonomous, independent work

Team approach to work

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Supernova Value Proposition


What is the value proposition embedded in
Supernova for customers?
focuses on issues critical to clients and that had not
been the focus in the past:
frequency and quality of contact
rapid response to clients needs
attention to personal/customized details

based on the ideal customer experience and therefore


good value in terms of financial portfolio planning
Supernova Service Promise:
customer will have a multi-generation financial plan in place
customer will be contacted by FA at least 12 times every year
customer will receive rapid response to any problem, hearing
from firm within one hour, and having resolution within 24 [mostly
handled by client associates]

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Supernova Value Proposition


For clients
multi-generation financial plan in place
FA knows the client and provides individualized advice

process and total customer solution rather than a


product orientation
based on the ideal customer experience
More frequent contact; advice rather than sales
Contact from FA at least 12 times every year, including at least 4
portfolio reviews, 2 of which are face-to-face

rapid response to any problem (1 hour response; 24hour resolution)

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Supernova Value Proposition


For FAs
improved quality of life

less chaotic, planned interactions with clients


process oriented rather than crisis oriented
fewer clients so time to focus on relationships
client associate support for fielding calls and handling fires

Improved income
focus on profitable clients
growth through account management
less time wasted on pursuing unprofitable new accounts

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Major Changes for Financial Advisors


Segmentation
Organization
Acquisition

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Segmentation
segment clients to keep only the best:
each FA down to (ideally) 200 clients ($1 million in annuitized assets
at Merrill Lynch and $10,000 in fees/commissions)

process:
hard to determine at first:
one FA developed 11 sets of rankings to determine best clients based
on revenue, profitability, relationship value, etc

use a model to determine top 100 clients initially


he found that 33 clients were ranked highly on every list and these 33
generated 89% of his income!

hand off less desirable clients to other FAs who need the
business or to the Financial Advising Center
often these clients were happier and stayed longer with Merrill Lynch
than they might have otherwise

(suit analogyonly want 20 high quality suits)

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Organization
more delegation of routine calls and tasks to Client
Associates
hard for CAs initially, so FAs sometimes personally
offered them incentives to make the switch

monthly calls are scheduled by the CA, resulting in


fewer interruptions and allowing FAs to focus on
important issues with clients in a more organized
way
CAs also organized FA daily folders for calls that
day
result: structure, organization, and folder guilt

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Acquisition
every year FAs still need to acquire new, high
quality clients (suit analogy), but fewer new clients
than in the past
2-4 hours per day available for acquisition
more than FAs needed

referrals are often the best source of new clients


hard to focus on acquisition many times within
the Supernova model since life was too good
e.g., golf problem (FAs finally had time in their lives for
golf and other things; hard to use the time for acquisition)

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Risks of Supernova
Supernova represents a major change in philosophy and
approach to clients
Does the approach match the personality of a typical FA?
What if they lose some of the best FAs?
Who will lead the effort and provide the organizational
leverage?

If not implemented properly, or fully embraced, Supernova


could result in frustration (e.g., if FA kept too many clients)
and damage to the Merrill Lynch brand
Some traditional metrics do not align with Supernova goals
e.g., not rewarded for profitability of business, but rather revenue
and commissions

May result in less focus on acquisition


e.g., golf problem

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Benefits of Supernova
Greater levels of client retention and client
profitability

Better quality of life for FAs


Makes Merrill Lynch more competitive (for
both clients and FAs) in a declining business

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Supernova How does it work?


Supernova is a process
Segmentation of individual FAs customer base to
determine top 200
handoff other clients to younger FAs or Financial
Advising Center

Organization of process for client follow-up


delegation of routine calls to Client Associate (CA)
monthly calls are scheduled by CA
daily folders are organized by CA

Acquisition
2-4 hours per day allocated to acquisition to ensure flow
of new, high-quality clients

Supernova What are the


challenges?

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Supernova represents a major change for FAs


difficult for some FAs because it doesnt match their
personality
difficult to give up clients
income can potentially decrease at first

Metrics and incentives dont match the new system


traditional incentives for revenue and commissions, not
profitability

Potential loss of successful FAs who choose to go


elsewhere
Potential lack of focus on acquisition golf
problem

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Supernova National Implementation


To be successful at a national level, Supernova:
must be a corporate priority
needs visible and continuous support from the top
needs consistent metrics to measure success of
Supernova and incentivize FAs accordingly
system must not be too structured, otherwise many FAs
may not buy in
be made as easy as possible for FAs to adopt, but what
happens if they dont want to?
personality characteristics that fit the new approach
should be part of hiring for new FAs

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Supernova Incremental Roll-Out


Advantages of incremental roll-out
only those FAs who really are committed will do
it, so they are likely to succeed
keep successful FAs who prefer the old system
less risky if Supernova does not work

Risks of incremental roll-out


dilution or confusion in Merrill Lynch brand
inconsistency of customer experience
dilution of value of Supernova

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Merrill Lynch 2007


One of the worlds leading wealth management,
capital markets and advisory companies
Offices in 38 countries with client assets of
approximately $1.7 trillion
Ranked 22nd in Fortune 500
61,900 employees, including 15,000 Financial
Advisors
all new FAs complete a rigorous five-year training
program
many FAs work as part of an advisory team

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Merrill Lynch Client Commitment


Our most deeply held principle at Merrill Lynch is
clients come first. We are proud to be part of that
tradition. To help you meet your financial
objectives and build your wealth, we offer advice
that goes beyond stocks and bonds to look at your
complete financial pictureadvice that adds value
to your life, not just your balance sheet. . .
(from Merrill Lynch financial advisor website, 2007)

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ML: Supernova Conclusion


Supernova approach is widely used at
Merrill Lynch
in 2005 cold calling was no longer part of new
FA training
instead FAs are trained on statistical analysis,
behavioral finance, financial planning and wealth
management

Similar approaches have been adopted at


other brokerage firms

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Lessons from the Case


Moving from a transaction marketing and a relationship
marketing approach can be challenging and counter to a
firms culture.
Customers can be segmented into various levels of service
delivery.
Firing customers can be good for both customers and
firms.
Developing a relationship marketing focus can be difficult,
particularly if that is not the organizations culture.
The three additional Ps can be proactively managed to
improve the customers experience:
process, people, and (to some extent) physical evidence.