Reactive or Proactive strategic initiative
Although Merrill Lynch has introduced Integrated Choice as an evolution of their existing business model of being “all things to some people,” it may also be that their motivation was more reactive in nature. This assertion is supported the wide body of literature that supports the growing role of online trading and the aggressive strategies of competitors like Schwab.
Wired News (4/99) reports Schwab’s market value as being $41 billion, or roughly $4 billion more than Merrill Lynch with much of it having been derived from online trading. According to siliconvalley.com and devices.internet.com, Schwab had even committed to offering clientele wireless trading through handheld devices such as the Palm VII. This suggests Schwab understood the importance of attending to the consumers demands for flexibility and execution. At the same time, Schwab was targeting the full service firms’ clients, particularly those of high net worth.
By 1999, Morgan Stanley Dean Witter had also rolled out an online trading service that not only catered to upscale clientele, but also allowed the customer to vary the amount of involvement with a broker.
Merrill Lynch would be hard pressed to argue against the deployment of an online strategy in the face of such substantial competition. While Merrill Lynch’s strategy is both innovative and sensitive to the role of their financial consultants, there is arguably sufficient evidence to suggest they were reacting to obvious market trends and competitive threats. If anything, it appears Merrill Lynch underestimated the ability and scope of online trading with respect to high net worth individuals and of the market as a whole. This may also serve to explain the rather aggressive pricing strategy of their Unlimited Advantage offering (85 bps vs. 194 bps with Schwab’s similar offering) such that Merrill Lynch is attempting to use these price points to help assuage the opportunity costs associated with their affluent clientele and to prevent any migration of these customers to other brokerages.