Merrill Lynch Integrated Choice

Aamir Lalani Ijlal Farooqi Saad Kaazi

Introduction
Description Describes Merrill Lynch success in transforming its business model while shifting to online channel and offering products at economic prices. Learning Objectives Responding to competition by transforming its business model for survival Subjects Covered Change Management, Business
Model, Entrepreneurial Organization, Leadership, Learning Organization, Business Solutions, Strategic Management, Operations Management etc

Setting Merrill Lynchs U.S. Private Client - (1998 2000) Competitor Prudential Securities, Morgan Stanley Dean Witter, Charles Schwab

The Case
The case highlights the measures taken by the Merrill Lynch in response to competition faced by the industry while making possible for everyone to access the financial market with comfort. Merrill Lynch (ML) market leader in full-service brokerage founded in 1914 To keep pace with the competition, ML introduced new vision of doing business for financial service community Announced Integrated Choice on June 01, 1999 One stop source for financial services

About Merrill Lynch

Merrill Lynch (ML) market leader in full-service brokerage founded in 1914 ML Business Segments Wealth Management Group
 Brokerage and lending (securities transaction and secured lending)  Asset management & portfolio services

Corporate & Institutional Client Group

The General Environment

Full-service brokerage under attack from discount and electronic traders through market segmentation Technological advancements blurring the differentiation between segments Growing online financial transactions Price war (operating at low margins, cutting of commissions) Attracting discount brokers higher-net-worth clients Growing number of educated investors; changing customer profile

Business Model Framework

Segmenting client base, identifying target client groups and developing broader and stronger relationship with key clients (affluent and small-medium sized businesses) All things to some people strategy

Performance Drivers
Strategy

Revenue Model Fee (Brokerage transaction, account maintenance, asset management)

Revenue
Earnings

Shareholders Equity
Market Value

Cost
Value Capabilities

Assets
Cost Model High Caliber Financial Consultants (14000), Physical Infrastructure (750 offices) Target Market Affluent individuals, Priority clients, Premier Priority clients, Premier Plus clients.

Financial Returns
Arrays of financial services & products, comprehensive & innovative solutions to financial problems & effective execution.

Investor Returns

Market Capitalization $ 25.5 bn

Business Strategy Transformation

Shifting to online channel (Changing business model) Offering free access to financial market research information Aligned the pricing structure with Value Chain Designing economic models to optimize pricing strategy Integrated Choice Acquisition of D E Shaw Financial Technology (developer of online trading system) Extensive series of internal communication

Integrated Choice
Client Direct ML Direct Investor Services
Offers wide range of access to: 1. Proprietary analyst research (best) 2. Visa Signature credit card 3. Check writing and electronic bill payment 4. Exclusive electronic shopping

Financial Consultants Investor Services Traditional Fee-Based Relationship Fee-Based Discretion

Integrated Choice (Products)

Direct (Self Directed) ML Direct Investor Services
Online offer with no financial 24 hours access to ML consultant advice representative for information, advice and transactions via toll-free telephone numbers Offer online trading at $29.95 Fee-based pricing (% of per equity trade assets) or traditional commission-based pricing ($ per trade) Allow participation in IPO Fully paid representatives through online IPO Centre

Integrated Choice (Products)

Financial Consultant Traditional Fee-Based Relationship Fee-Based Discretion

Traditional brokerage Unlimited relationship account

advantage ML discretionary services & assign portfolio management responsibilities to Professional Money Manager

Fee-for-service basis based on the existing commission structures

Annual fee, % of Fee-based & assets for Performance driven Personalized Service, unlimited trading,

Building Networked Business

Operating and Innovating Precision Execution
 Streamlined, integrated and efficient operations; linking activities performed inside the firm with client needs Flexible product design enable customization & personalization (ML Direct, do-it-yourself products, investor services, unlimited advantage account, analyst research) FCs are rewarded on performance basis FCs worked with clients in managing their assets (high-networth individuals, next generation clients, small to medium sized businesses & financial institutions Incentive systems & rewards attracts and retain clients (earning money market interest rate) & FCs compensation from targeted marketing programmes

Fastcycled innovations


 

Customer & Community Connected

Building Networked Business

Managing and Learning Control and Integration
 Achieved through hierarchical planning, monitoring and performance measurement systems (e.g. of reporting relation: FCs Manager Regional Vice President District Manager National Sales Director)  Integrating Microsofts COM to link front end system with back end.  IT infrastructure users Clustered NT Servers, Information Servers, Web Servers, In-house middle wares, deployment of Cisco hardware and bandwidth from AT&T

Learning by doing
  Entrepreneurial approach (FCs building business through mailings, seminars, client referrals, word of mouth) Segmenting client base, better identifying target client groups and developing stronger relationships with key clients

Building Networked Business

Leading and Engaging Visionary Leadership
 Visions are translated into actionable strategies

Energized Participation
  Training of Financial Consultants Stretching targets to energize action and motivating everyone to achieve peak performance (average compensation $300K) Latitude to FCs in pricing products Focus groups with clients, FCs over making prices competitive and going online through internet

 

Skilled in conflict resolution & negotiations

 Negotiating win-win agreements with Investors

Bottom Line
Deciding future of Financial Consultants Reinventing business model for online trading Meeting needs of experienced investors through discount brokerage services Effective cost structure is essential for success

Thank you