Bank of America Corp. took a risk when it recently launched Merrill Edge, an online, call-center and branch-based brokerage poised to compete with discount brokers, but it said that gamble is paying off.
Merrill Edge targets so-called mass-affluent consumers, or clients with assets of $50,000 to $250,000. It gives them a place to manage their investments other than Bank of America's Merrill Lynch, which is aimed at higher-end clients.
The new operation had the potential to divert assets from other parts of Bank of America, like the consumer bank or higher-end Merrill Lynch accounts. So far, however, Merrill Edge is bringing in new money, Merrill Edge head Alok Prasad said in a recent interview.
At the end of March, assets in the approximately 1.5 million Merrill Edge brokerage accounts totaled $66.7 billion, a 4.9% increase from year end. The broad market strength was a factor, but the increase "has primarily been driven by strong organic growth," the company said.
The key has been Merrill Edge's affiliation with the consumer bank, which has a pool of about 10 million mass affluent clients to tap into, Prasad said. When banking clients stop by a branch and inquire about opening an investment account, they often are referred to a Merrill Edge financial solutions adviser, a registered Series 7 or 66 representative who can help create financial plans.
These clients are typically bringing in money from outside Bank of America, in Charlotte, N.C., to their new brokerage accounts — and then are also often increasing the money in their checking accounts, according to Merrill Edge. "By bringing in banking and investing and the full set of retirement solutions that we have, I believe we are able to become the primary institution for them," Prasad said.
Other sources of assets have been rollovers from retirement plans managed by Bank of America Merrill Lynch and other companies' retirement programs, referrals from Merrill Lynch itself and new customers drawn by a marketing campaign, Prasad said. He did not provide the price tag on the ad campaign, which is mostly online, but said it is part of Bank of America's overall media plan.
The company did not specify which competitors it is taking some of its new money from, or exactly how much of the growth is new money. One competitor, Charles Schwab Corp., did not comment on Merrill Edge, but noted that its retail business saw transfers of assets in from Bank of America Merrill Lynch in the first quarter almost double, compared with a year earlier. "Naturally we saw some outflows too," a Schwab spokeswoman said, but they were "vastly outnumbered" by inflows. Other Merrill Edge competitors did not provide transfer of asset data.
Merrill Edge is being closely watched because it bridges three worlds: the big brokerages, dominated by firms like Merrill Lynch and Morgan Stanley Smith Barney; discount brokerages like Schwab; and consumer banks. One close peer is Wells Fargo Advisers' WellsTrade, a discount brokerage for self-directed investors.
Merrill Edge was introduced last June, but was officially launched in January. Originally it was under the helm of global wealth and investment management head Sallie Krawcheck, who also oversees Merrill Lynch. But in the first quarter it was moved to the consumer banking division.
Merrill Edge measures up well against other discount brokers, said Mike Ellison, president of the consulting and research firm Corporate Insight.
"Is it going to be something for a hard-core active trader? Probably not, but it's not designed to be," Ellison said. "For a typical self-directed brokerage client, it's definitely a contender."
Analysts and consultants broadly said that if Merrill Edge is not well executed, it could risk dragging down the Merrill Lynch brand. If Merrill Edge has trouble, it could affect "the powerful brand that is Merrill Lynch," said Michael Kostoff, managing partner with the consulting firm The Kostoff Group.
Prasad does not appear to be worried. "We are looking forward to Merrill Edge becoming a great brand for our mass affluent and emerging clients," he said.
