Merrill Lynch & Co.'s ambitious plan to start on-line trading in December puts off for six months any chance to catch up with rivals in the fast-moving Internet brokerage business.
Amid much hoopla, Merrill announced Tuesday that it would enter the on- line fray by charging $29.95 per trade, a plan that would put it in the same league as Charles Schwab & Co., the San Francisco-based discount brokerage.
The move came after much soul-searching at Merrill about how to prevent customer defections to firms such as Schwab and E-Trade Group of Palo Alto, Calif., which lead the booming market of Internet trading.
"This is probably the most important decision we've made since we decided to go ahead with the Cash Management Account in the 1970s," said David H. Komansky, Merrill's chairman and chief executive officer, at a packed press conference in Merrill's New York headquarters. Mr. Komansky conceded that the decision came after "a lot of debate" within Merrill.
Christos Cotsakos, E-Trade's chairman and CEO, said Merrill's announcement validated his own firm's Internet ambitions. "I guess both Komansky and (vice chairman John L.) Steffens now realize that this isn't un-American; it's just good for business and good for the consumer."
But waiting until December for an across-the-board Internet debut could impede Merrill's plans to win market share from competitors, observers said. Merrill has offered limited on-line trading to high-net-worth clients since 1998.
"They're not going out until December. That's a long time in Internet terms," said Bill Burnham, an electronic commerce analyst in San Francisco for Credit Suisse First Boston Corp.
Merrill will have to invest millions of dollars in technology and other resources to take on the likes of Schwab, Mr. Burnham said. Schwab continues to lead the market in on-line investing, with 27.5% of the Internet investor customer base at the end of the first quarter. "It's not like you fall out of bed one day and become a discount broker after being full-service for years," Mr. Burnham added.
Merrill will probably have to make a sizable acquisition to achieve its goals, he said.
Indeed, Mr. Komansky suggested that Merrill would probably announce alliances in coming months to help achieve its goals.
With its bid to compete in the on-line world, Merrill also unveiled an account that it hopes will help the company retain full-service customers.
The new no-commission account, to be introduced next month, will be accessible through a broker as well as electronically and will offer pricing based on household assets. The account will charge 1% of equity and mutual fund assets and 30 basis points of cash and fixed-income assets. It will offer perks such as a Visa Signature Card and broad-based cash management services, including no-fee ATM transactions worldwide. Customers will be charged a minimum annual fee of $1,500.
"They're trying to be all things to all people," said Les Dinkin, managing principal at NBW Consulting Group in Westport, Conn. "They're trying to make a bridge to high tech without leaving the high touch behind," he said.
Merrill, which had about nine million accounts worldwide at the end of 1998, has expanded its client base by 30% to 35% in the last two years, Mr. Steffens said. New methods of access to Merrill should help its client base grow a further 15% to 20%, he said.
