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Merrill Gives You A Bargaining Chip


BusinessWeek Investor -- The Barker Portfolio

Merrill Gives You a Bargaining Chip

Something tells me sales of Prozac must have zoomed in June. That's when Merrill Lynch's army of 14,800 brokers learned that their firm had come up with a new scheme for pricing its services, including a plan to offer online trades for $29.95 each--effectively slashing one big way they make a living. If I were a broker at Merrill or any other full-service firm, I'd want to ask for the big bottle of Prozac, extra-strength, plus two Advil on the side.

But I'm not a broker, and what's a major downer for many of them spells happier days for the rest of us. Merrill's cut-rate online trading service, which matches discount brokerage leader Charles Schwab's in price, isn't set to begin until December. But more important to anyone who prefers a full-service broker to a discounter is Merrill's new, easy-to-grasp schedule of fees. It's available now in Merrill's new "Unlimited Advantage" account. Its simple and relatively low rates give investors a weapon to negotiate the most brokerage service for their money.

How? By demanding terms at least as favorable as what Merrill, the world's largest brokerage firm, now offers. The most maddening reality of dealing with most full-service brokers is all the uncertainty over fees. The game works this way: Firms post high sticker prices and then, if forced, start discounting--typically up to 30% at a broker's discretion. This leaves clients either exhausted or wondering if they're getting rooked. It's a lousy way to run a fiduciary relationship. The smarter firms know this and, like Merrill, are offering clients more choices.

You can still do business the old way, commission by commission, at Merrill. But under its new scheme, the firm offers a battery of services, from financial planning and investment research to advice and trading any way you want--via human, phone, or the Internet. Merrill also throws in checking and other banking services, such as mortgages, electronic bill payment, and its Cash Management Account. The price: 1% a year on equity assets, and 0.3% on fixed-income and money-market investments (table). Those rates fall for clients with more than $1 million, and there's a minimum fee of $1,500 a year.NO "EXTREME" TRADING. This fee schedule won't work for everyone. While Merrill highlights "unlimited" trading, it actually excludes day traders and investors using other strategies it deems "extreme." How much trading is too much? Merrill is vague about that. Trading 150 or 200 times a year wouldn't set off alarms, says Joseph Grunfeld, a big Merrill broker in Manhattan told me. Nor would you get your money's worth if you rarely trade, or if you've got less than $100,000. On that, the $1,500 minimum fee works out to 1.5%. There are cheaper alternatives. Put $100,000 in a PaineWebber account, for instance, and you can make 18 trades a year for $750.

But if you're an active investor with a larger account, Merrill's offer is a good one. Salomon Smith Barney's AssetOne plan, for example, limits your trading more strictly, yet nominally costs more: A $500,000 all-stock account there runs $6,874 a year. Merrill's 1% fee would come to just $5,000. A $3 million account would cost $26,875 at Salomon Smith Barney, $25,000 at Merrill.

Does that mean you should rush over to Merrill? Not necessarily--especially not if you get good advice and service from your current broker. What you should do, though, is take Merrill's fee schedule and use it to get your best deal.

Chances are, you can. The only thing brokers hate more than price competition is talking about it. They'd rather keep you focused on something fuzzier--the value they offer. Fine, but it can't hurt you to refocus them on price. They'll listen. As one veteran Florida broker, a former Merrill man who now works for a big rival firm told me, brokers are realists. "Competition drives things," he said. "I'll match [Merrill] in a heartbeat."

Merrill's main rivals, such as PaineWebber, already plan to announce new ways to price their services. If we're lucky, online trading and more pressure from discount brokers and the Internet will force the full-service crowd to keep making us happier, slashing prices and cutting customers a better deal.Questions? Comments? E-mail barkerportfolio@businessweek.com or fax (407) 728-1711By Robert BarkerReturn to top


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