MERRILL LYNCH: RETENTION OF ASSETS

Robert ChristeMBA 617

University of Alaska Fairbanks

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Executive summary (Abstract)

Merrill Lynch is a global asset management company that was acquired by Bank of America

during the financial crisis. The two companies were married in order to provide stability and

security to the surviving financial institutions. During the crisis, Lehman Brothers, one of the

oldest asset managers in the industry, had a crisis of confidence due to its highly leveraged

security positions. Government Regulators wanted to send a message, a sacrificial lamb had to be

chosen, and they decided to let Lehman fail. At the same time, other asset managers were poised

to fall like dominoes. This prompted regulators to insist that Merrill Lynch partner with Bank of

America and Bear Stearns strike a deal with JPMorgan. This turned too big to fail banks into

much larger institutions which has created a far greater systemic risk profile resulting in higher

capital requirements. While the famous Dodd-Frank legislation still being written, with

extremely low profit margins, and the government incessantly trying to extract penalties for the

housing crisis, these institutions are leaning out their workforces while planning for the future.

This has lead Merrill Lynch to simplify its organizational structure to better serve its clients by

moving away from single Financial Advisers managing upwards of $150 million in assets to

creating financial advising teams around them. This points to the main hurdle I see for the

company, dividing the commission that established Advisers have earned while rolling out the

team structure. After reaching the pinnacle of your craft and becoming a million dollar producer,

why would someone want to share all that hard work and money with a team? The answer is it

allows the company to streamline its operations while integrating succession planning in their

organizational model. The new structural model will allow the company to better achieve its

goal as stated below while growing its assets under management (AUM).

At Merrill Lynch, your Financial Adviser focuses on the things you care about most –

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family, goals, and priorities – even as they change over the years.

Organizational analysis

Looking at the organizational chart taken from the Bank of America investor relations

site (Appendix 1), we can see that Merrill Lynch now appears to be completely integrated.

Although it looks nice and neat in the picture, Bank of America announced it was acquiring

Merrill Lynch on September 14, 2008, the deal closed January 1, 2009, and the integration was

complete in 2014. I personally believe the combination of two companies can take a very long

time if they are to be seamlessly integrated. Currently the Merrill Lynch Wealth Management

unit has an office separate from Bank of America in the Alaska region but as the team structure

develops and bank branches are closed it is easy to see that both businesses will be under one

roof. The complexity of the Bank of America model lends itself to simplicity as there is a tall and

high vertically differentiated three tiered structure. The structural model I added for Merrill

Lynch itself appears to be a flat Jack Welch style model which is extremely encouraging to see

because it does not leave room for bureaucratic nonsense. This actually plays into the new team

structure as each group is an independent business allowing for greater flexibility. This type of

model is indicative of a wide span of management leading me to believe that the officers at

Merrill Lynch are some of the top professionals in their areas. These two structures appear to

oppose each other but one is just a substructure inside the other and they have leaned operations

since the financial crisis due to low interest rates providing abnormally low profits. Overall the

structure does not appear to be overly complex, it is simple and straight forward, but we must

remember that these charts are meant to appear that way. That being said I pulled their report

from the Goldman Sachs U.S. Financial Services Conference in 2014 and they appear to have

simplified their business even further as shown in the third picture of Appendix 1.

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Looking at the total company, Bank of America looks like a tall vertically differentiated

structure and Merrill Lynch looks like a flat horizontally differentiated structure. When the

companies merged the Bank of America structure remained. However, when I visited the Merrill

Lynch office in Anchorage, the flat horizontally differentiated structure was evident by visual

inspection. I had the opportunity to sit down with three personal financial advisors in the

Anchorage office and they were apprehensive about the new team structure but were willing to

work towards the new objective because it would allow them to better serve their clients in the

long run. There was a lot of talent, sharing of ideas, and everyone seemed to work together for

the betterment of the client. It was also easy to see that there were invisible lines drawn, each

Adviser has their own office and pool of clients defining their business that they were willing to

guard like a shark.

I did not see a strictly competitive work environment rather a seriously friendly

competitive learning curve. The new team structure is organized to be led by an experienced

Adviser that already has a large amount of assets under management. However, as I was

entertaining the idea of working for Merrill, I was told that if I was ambitious I could go out on

my own and build my team personally. This was enticing but I decided it would be much more

educational to work with a seasoned professional because the environment is extremely

competitive and I could always form my own business later. Making this decision was simple

because there is a 90% fail rate for the new Financial Adviser program. The goals are high and if

the hurdles are not met they let you go after 1 year. Specifically, a new Adviser in training has to

bring in $10 million in assets per year for the first three years, then they are considered a newly

minted Adviser.

That being said, the company has a deep bench of proprietary technology that is available to

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Financial Advisers so that they can service clients adequately. Although they have basic

computers in their Anchorage offices their proprietary technology comes from a central research

department. I believe it is an industry standard but the company has its own methods and world

class analysts.

The company’s organizational culture is seriously fun and friendly. I talked with Nancy

Olzack on the phone and met with her in person at the Anchorage office on the 12th floor of the

Frontier Building located at 3601 C St, Anchorage, AK 99503. I also had a phone conversation

with Mike Maroni, the Regional Director out of Seattle. Both represented the company in a

professional business manner and wanted me to reach my personal goals as well as succeed at

Merrill Lynch. I entertained the idea of working at the company and they both agreed that I

should finish my MBA in Capital Markets first as it would make me a more knowledgeable

Adviser. Throughout our conversations, both Ms. Olzack and Mr. Maroni exemplified the

company’s statement of putting the ideals first, family, goals, and priorities. The company is

centered on taking care of the client and maintaining happy employees. This works to their

advantage because happy employees keep clients happy and represent the company well in the

community. Overall, Merrill has an excellent culture and is accepting of anyone willing to work

hard. There are no barriers and other than the securities licensing and 4 year college degree

requirement. The company is a very green company in that it really has little or no waste or

carbon emissions due to it being in the financial industry. I imagine that the floor of the building

in Anchorage they rent does have a carbon footprint but related to other industries it is rather

small. Regarding diversity, I looked at the top six managers in the company and it was amazing

to find they were very diverse in education, background, and both sexes were represented. I

have looked over quite a few companies in my research and I never found such a diverse group

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as these six. The company is also committed to social responsibility and taking care of its

stakeholders. This is very desirable so that the opening of new wealth management offices are

well accepted by local communities throughout the globe and the company is seen as taking a

holistic approach to their external environment.

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With the playing field for the financial industry being global, the competition is fierce and

companies fight for top performing Financial Advisers. This is obvious a weakness for the new team

structure but from the Advisers in the Alaska office I have spoken with, they welcomed the change

because they can increase their assets under management, they can take more vacations, and they can

secure their own retirement. The possibility of Merrill Lynch being acquired for its financial team is

nonexistent because the acquiring company would have to absorb Bank of America. I do see Bank of

America spinning off Merrill in the future and making it a completely stand-alone public entity. This

would come close to eliminating the “too big to fail” capital requirements and reduce the burden of over

regulation. Even then I don’t think the possibility of a merger or acquisition is in the cards. The

company is already global and operates in the markets listed below. As far as regulations they are the

same or similar around the world, I hear that a lot of traders like Thailand because they have not taxes on

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capital gains.

The company is internationally diversified but Mexico and India are the emerging markets with

the most favorable demographic distributions and I believe they should expand further in those regions.

Their competitors at home would be the same competitors abroad because international clients look to

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American’s financial prowess. As far as expanding the team model into these two regions, I would

suggest the company recruit individuals specifically from India and Mexico, develop a team around them,

and then send them back into the field. It is rather obvious to see that this model would be the most

efficient if we use Indra Nooyi, the CEO of Pepsi, as an example. She has unique insight into the fast

growing Indian market in specifically areas such as, tastes, habits, culture, and product placement. In this

respect I think Merrill Lynch should follow Pepsi’s model and in the process they will win the hearts and

minds of the clients they seek to capture.

Conclusion

In conclusion, I can see seasoned Financial Advisers that are $1 million or greater producers,

meaning that they have $100 million or more under management at a 1% fee rate, being apprehensive.

Some might even follow the approach of the Adviser I talked to at Wells Fargo Wealth Management in

Fairbanks, Alaska and leave Merrill Lynch. This particular Adviser, in a three hour conversation, told me

that he was the largest producer at the Anchorage office and was fine working alone. This was exactly

why he moved to Wells Fargo, he had developed a fantastic business and could work it by himself with a

single secretary. In my opinion, there will be seasoned professionals that take this approach because they

want their money and hard work to themselves and I can completely respect that. However, this may

come at the expense of strained service to the client as well as difficulty finding a suitable trainee for

retirement. The new team structure that Merrill Lynch has envisioned solves all these problems and is the

best approach for its business. This may not be concurrent with the interests of a seasoned Financial

Adviser in the beginning, but from the talented professionals I have had the pleasure of sitting down with,

they like the idea of mentoring their replacement and agree it is best for the long run of the business.

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Appendix 1Organizational Charts

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ReferencesMaroni, Mike. "Interview with Mike Maroni." Business review. Self-sponsored. Merrill Lynch

Wealth Management, Anchorage. 9 Feb. 2015. Lecture.

Olzack, Nancy. "Interview with Nancy Olzack." Business review. Self-sponsored. Merrill Lynch

Wealth Management, Anchorage. 9 Feb. 2015. Lecture.

Merrill Lynch Wealth Management. (2015, January 1). Retrieved March 13, 2015, from

https://www.ml.com/

Merrill Lynch Wealth Management. (2015, January 1). Retrieved March 13, 2015, from

https://sec.gov/

Bell, Robert. "Interview with Robert Bell." Business review. Self-sponsored. Wells Fargo

Wealth Management, Anchorage. 13 Feb. 2015. Lecture.