Merrill online suffers from benign neglect

When Merrill Lynch & Co. launched online brokerage MLDirect last year, competitors gasped.

But as MLDirect’s first anniversary approaches, they are no doubt breathing easier. Like a crocodile dining on water buffalo, Merrill appears content to let the small game swim past, some analysts say.

To date, the company has about 100,000 online accounts – compared to online king Charles Schwab Corp.’s more than 4 million – and it has spent a pittance on advertising and marketing.

“I don’t think [Merrill wants] the online-only customer because they tend to be very rate sensitive,” says Charles Wendel, president of Financial Institutions Consulting in New York.

“At the end of the day, they’re not really advertising,” adds Gregory Smith, an analyst with Chase H&Q in San Francisco.

behind in spending

Though New York-based Merrill would not disclose its advertising bill for MLDirect, it’s far short of the $521.5 million that E*Trade Group Inc. spent in fiscal 2000 or the $243 million Schwab spent through Sept. 30.

Nor has Merrill leveraged its branches by assigning space to its MLDirect customers.

The nation’s largest brokerage certainly has the arsenal to win over do-it-yourself investors – a brand name, a brain trust and a branch network.

And, a Merrill Lynch spokesman notes, that the 100,000 online accounts figure excludes more than 800,000 Merrill Lynch full-service customers who have opted to use MLDirect as an additional means to buy investments.

The spokesman adds that Merrill Lynch is trying to build its online brokerage business, but he declines to say how and when the New York company will make its big push.

Indeed, analysts agree that MLDirect could take a far-greater chunk of the online brokerage market if Merrill Lynch executives decide to put the bite on its competitors.

The MLDirect website has won high praise from publications that rate online brokers, with special mention going to the quality of research Merrill Lynch offers.

“With Merrill, you’re talking about the national brand,” says Jon D. Holtaway, an analyst with Danielson Associates in Rockville, Md. “I can only theorize that they have no intention of going after that niche.”

Mr. Holtaway notes that the digital bull portrayed in Merrill’s current ad campaign shows that the company wants to at least project an Internet-savvy image.

But it considers pure online accounts “smaller players, and they’re not really interested,” insists Jeffrey Hooke, author of “Security Analysis on Wall Street.” He adds, “It may not be worth it to them” to spend lavishly on advertising.

Straddling two worlds

Still, Mr. Wendel says, Merrill’s online brokerage advertising budget alone does not tell the whole story.

He says that Ameritrade Holding Corp. and other online startups are fighting to get a foothold in the public’s consciousness and may need to constantly replenish their account base with relentless advertising.

That is not so much the case with Merrill Lynch.

“Merrill already has a brand, so they’re playing a different game,” he says.

Mr. Wendel believes that that game may yet prove highly effective. Only now is it becoming clear that people prefer a so-called bricks-and-clicks broker. Merrill Lynch can straddle the two worlds better than its competitors can.

“The advantage Merrill has, ironically, is that, in being late, they can better coordinate online and offline,” he says.

Bill Bradway, research director of Meridien Research in Newton, Mass., says synthesizing the two worlds comes down to keeping financial advisers happy.

“How do you compensate Merrill brokers for handling online ac-

counts?” he asks.

But the clock is ticking. Schwab is gathering assets at a greater rate than Merrill Lynch is, and the San Francisco discount broker’s average customer is about two decades younger, according to the analysts.

“It’s OK that Merrill’s heads are down right now rather than [acting] like an elephant coming down the hall that doesn’t know where it’s going,” Mr. Bradway says.