Merrill Lynch makes big changes in managed account programme

NEW YORK (Reuters) - Merrill Lynch is overhauling its US$438 billion (S$562 billion) managed account business, spending more than US$100 million to streamline how brokers open accounts, build portfolios and charge for their efforts.

The project, which will be phased in from October through the end of 2015, aims to unify motley fee structures, performance reporting and billing methodologies associated with five different money management models introduced over two decades.

The programmes range from "separately managed accounts"constructed by outside hedge fund managers for wealthy individuals to "wrap" programmes in which lower-end clients pay a single fee to have advisers place their money into a group of mutual funds.

The renovation will "drastically" reduce paperwork, according to Merrill. Clients at most large brokerages now sign separate contracts for myriad accounts and receive performance reports as well as billing for each investment programme. Account contracts can run from 672 to 120 pages, not counting more than 300 pages of welcome kits.

Merrill advisers today must manipulate spreadsheets on the side to get a consolidated view of clients' portfolios and go through laborious paperwork to mix and match among the five options.

"Advisers have done a phenomenal job of keeping the sausage-making as far from the client as possible, but it's convoluted for clients and advisers," said Lorna Sabbia, head of the managed solutions group at the Bank of America Merrill Lynch Wealth Management division.

Merrill's new programme calls for a single set of documents.

Clients won't have to open new accounts when assets shift among programmes, and the firm's almost 15,000 advisers will find it easier to create portfolios using strategies from multiple programmes.


Rather than toggling among them or shoe-boxing clients into particular programmes for the sake of simplicity, the brokers will be able to build customised portfolios using various managers and allocations.

Merrill also said it will have a "unified" fee structure tied to the mix of services and products clients use throughout its parent, Bank of America. Fees are currently tied to individual programmes.

Out of about US$438 billion of assets in Merrill's managed account programmes at the end of March, US$139 billion were in accounts over which brokers had discretion, US$184 billion in accounts where they must first get investment approval from clients, and the rest in separately managed accounts, wrap accounts and traditional brokerage accounts.

The majority of the 1.4 million clients in the managed account programmes are invested in two of them, Ms Sabbia said, in part because advisers get comfortable with particular platforms.

Simplifying the process for clients and advisers is a "big move," said Alois Pirker, director of research at Aite Group, a wealth management consulting firm.

Morgan Stanley, Wells Fargo Advisors and other large competitors may eventually adopt the emerging Merrill managed account model because it is likely to create more diverse portfolios for clients and more profitability for the firm, Mr Pirker said.


Merrill executives are aware, however, that big change creates big disruptions for advisers and clients, including the risk that some advisers will balk if their revenue shrinks.

One high-ranking broker in the Merrill system who focuses on a single management programme estimates that his team will likely lose 10 per cent of its revenue under the new single-fee, relationship-pricing structure - unless he decides to reduce the discounts he typically offers clients.

"We have advisers who built practices and specialties on the systems we have given them," Ms Sabbia said. "They will have a lot more flexibility, but this is a big change for us and they have to get acclimated to that."

But even the minority of advisers who suffer immediate revenue hits should benefit if the revised programme proves as client-friendly as planned since they will add assets and make referrals, she said.

To ease the process, advisers will not have to move existing clients to the new platform until the last day of 2015. Advisers have received fee calculators and scenario planners to help them model the changes for themselves and clients.

New clients will be incorporated into the programme beginning next year. A pilot programme to "work out the kinks" will be tested across Merrill's 11 regions beginning in the fall, according to Ms Sabbia.

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