Schwab, Merrill Spar as Tactics Converge
In a pointed and uncharacteristically harsh attack, the chief strategist for discount brokerage Charles Schwab Corp. on Monday disparaged Merrill Lynch & Co.’s recent investment performance and blasted its new fee-based brokerage service, Unlimited Advantage.
In response, Merrill executives said the remarks--made by Schwab strategist Daniel Leemon at a conference of financial advisors--are a sign that the discount broker is worried about the competition Merrill’s new investment advisory program might bring to advisors who manage clients’ funds through Schwab.
“It’s clear we’ve gotten to them,” said Susan Thomson, a spokeswoman with Merrill Lynch in New York.
James Punishill, an analyst with Forrester Research in Cambridge, Mass., said of the spat: “This is the gloves coming off.”
Schwab, the nation’s leading discount and online brokerage, hadn’t gone after the full-service brokerage giant before. “It’s never been Schwab versus Merrill before. Now it is,” Punishill said, noting that the line between discount/online and full-service brokers is blurring.
That line became blurrier than ever after Merrill joined the online investing fray in June--at the same time it unveiled Unlimited Advantage, a new asset-based pricing plan. Unlimited Advantage directly competes with investment advisors who service clients’ accounts through Schwab.
“All of the big boys are finally in the same ring,” Punishill said. “This is Schwab’s way of saying, ‘Let’s bring it on.’ ”
Leemon’s remarks, the opening salvo in what some say could turn into a full-fledged war, came at the start of a conference Schwab is holding in San Francisco for financial planners and investment managers.
Among the charges levied by Leemon: Merrill’s Unlimited Advantage plan, which does away with commission-based stock trades and instead charges clients 1% of their assets for management advice, “represents a price increase”--not a decrease--for most investors.
“Less than 5% of current Merrill Lynch customers are better off with the new pricing,” Leemon said. Merrill’s Thomson called that charge “absolutely ridiculous.”
Thomson pointed to a study by Sanford Bernstein analyst Steve Galbraith, who concluded that most fee-based financial planners charge an annual fee that is significantly more than what Unlimited Advantage imposes. Merrill’s program “represents a direct threat to financial advisors and indirect threat to Schwab,” said Galbraith, who also noted that a third of Schwab’s assets comes from the money independent investment managers bring to them.
Schwab’s Leemon, meanwhile, also said Merrill’s corporate culture may be ill-suited for asset-based pricing models, which financial planners have been using for years. He even questioned the quality of Merrill’s investment advice, given the lackluster performance of many of its stock mutual funds--and what he called the poor track record of the brokerage’s recent stock recommendations.
Leemon played a snippet of videotaped footage of a focus-group meeting in which one participant said, “I don’t see any advantage to [Unlimited Advantage].”
At stake is winning control over investor dollars at a time when Americans’ total investable assets have grown to $15 trillion, according to Schwab’s calculations.
The battle also comes as the largest percentage of those assets--nearly one-third by Schwab’s estimates--are invested in individual stocks, not cash and savings accounts as had been the case.
“This is about who’s going to deliver investment advice to mainstream investors,” says Punishill.
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Battling Brokerages
Shares of Merrill Lynch have held their ground since the company unveiled its account-maintenance fee program in early June, while rival Charles Schwab has slumped. Weekly closes and latest:
June 4:
$72.25 June 4:
$50.50
Merrill Lynch
Monday: $79.00
Charles Schwab
Monday: $38.88
Source: Bridge News
