Wirehouses go big on tech

With thousands of the clients they advise still paying full-service commission rates on securities transactions, Wall Street wirehouses might have the most to lose from a broad consumer move to web-based investment management services. Aware of this growing market, two of the largest Wall Street banks — Bank of America Corp. and Wells Fargo & Co. — have been investing heavily in online platforms targeting self-directed investors, most of whom use rival discount brokers such as Charles Schwab & Co. Inc., Fidelity Investments and TD Ameritrade Inc. They have some prickly issues of channel conflict to consider, but both are forging ahead with cheaper and increasingly powerful web-based tools for investors. “The full-service brokers understand they need to be better with their websites, and they're taking steps to address it,” said James McGovern, an analyst with consultant Corporate Insight, who has been assessing financial services websites since 1999. “They've made a lot of progress.” WEB SERVICES DIFFER Bank of America Merrill Lynch, with its Merrill Edge, platform and Wells Fargo, with its WellsTrade platform, are taking decidedly bigger steps in the online direction. Although Morgan Stanley and UBS AG have both improved the web-based services that they offer clients, they aren't offering a separate low-cost service for self-directed investors. Morgan Stanley's ClientServ platform, for example, gives clients online access to account statements, trade confirmations and company research. They can transfer money between accounts at the firm and consolidate accounts from outside Morgan Stanley for a single view of their financial position. But if customers of either Morgan Stanley or UBS want to trade equities online, they have to do it with the involvement of a financial adviser and pay full-service commission rates. BofA and Wells Fargo, on the other hand, are offering a service level and pricing model that is separate from the traditional adviser-client relationship. The main target market for online investing is mass-affluent customers who don't have enough assets to warrant paying for an adviser. But high-net-worth investors are also managing more money on their own — particularly since the financial crisis. 'SELF-DIRECTED ACCOUNT' “It's about both client acquisition and retention,” said Joe Nadreau, director of the Strategic Solutions Group at Wells Fargo Advisors. “The vast majority of our clients have a traditional adviser-client relationship, but 70% of affluent clients also have some form of self-directed account,” he said. “We want that relationship to be with us.” BofA launched Merrill Edge in the summer of 2010, starting with about 1.5 million clients of the former Bank of America Investment Services as well as Merrill call center clients with about $50 billion in total assets. Although the company has been marketing the service separately from the traditional Merrill Lynch advised relationship, it also has been tweaking its adviser compensation plans to encourage advisers to move their smaller clients down to the Edge platform. It has about $75 billion in customer assets. “Our goal was to focus on the mass-affluent customer segment with between $50,000 and $250,000 in assets,” said Alok Prasad, head of Merrill Edge. “As the clients' accounts grow and their needs get more complex, we refer them to a financial adviser.” The Edge platform offers online trading, research and a range of retirement-planning tools. Customers can aggregate internal and external accounts on the site, and access it from most major mobile devices. They also can call, e-mail or meet face to face with one of 1,500 Edge financial services associates to talk about asset allocation and portfolio construction. BANK INTEGRATION “They've done a good job integrating it all with the bank,” said Sophie Schmidt, an analyst with consultant Aite Group LLC, who has a Merrill Edge account. “They don't have Fidelity-level retirement tools yet, but they're adding features to it all the time.” Online equity trades at Merrill Edge cost $6.95 per transaction or $29.95 for representative-assisted trades. If customers keep more than $25,000 with Merrill and BofA, they get 30 free equity or ETF trades per month. Merrill Edge charges $19.95 for online no-load transaction-fee mutual funds. There are no fees for no-load, no-transaction-fee funds. Prices on fixed-income instruments vary, depending on the product. Customers of the Merrill Edge Advisory Center — who have access to financial service associates by phone or in person — have a different fee/commission schedule. Merrill also has launched a new MarketPro service for active traders that provides a customizable dashboard, streaming data and news feeds, as well as proprietary re¬search. Customers with more than $50,000 at the company automatically get access to the service. Both self-directed and advised clients are benefiting from Merrill's investment in infrastructure for the Edge platform. The issue for the company is determining what capabilities to make available for each customer segment. “Our ability to do this, technically, is easy. The question is, which functions do we want to turn on for clients?” said Scott Logan, head of business technology at Merrill Lynch. “If we give advised clients online capabilities, are we enhancing the role of the adviser or detracting from it?” he asked. Striking that balance is the challenge. On the private-client side of the business, Merrill is focused less on providing retirement-planning tools and trading capabilities and more on enabling online collaboration between advisers and their clients. In the past nine months, Mr. Logan has rolled out external account aggregation capabilities, secure messaging channels for advisers and clients and a secure online vault to store documents such as performance reviews for advisers and clients to share. Wells Fargo faces the same challenge. It has been building its suite of retirement planning calculators, investment research and trading capabilities on the WellsTrade platform. Most recently, it has been investing in mobile applications, given that about 50% of customer logins on the WellsTrade website are done from mobile devices, according to Mr. Nadreau. Like the Merrill Edge offering, customers of WellsTrade can invest entirely independently or they can get input from customer service representatives. Wells currently offers a premium package of 100 free equity or ETF trades per year for customers who link their Wells account to a PMA package — regardless of account balances with Wells. It's $8.95 thereafter. The offer ends April 1, 2013, after which customers get no free trades, but the cost falls to $6.95 per trade. Customers have to keep a $25,000 balance in a qualifying bank account or $50,000 across a range of Wells acounts to have the $30 monthly fee waived. The annual $60 retail brokerage account fee on WellsTrade is waived if linked to the PMA account. Both Merrill and Wells have a way to go in terms of the performance and usability of their websites. Neither stacks up very well against the discount brokers in terms of overall customer satisfaction, according to JD Power & Associates. Last year, it gave WellsTrade a score of 720 and Merrill Edge a 718 on a scale of 1,000. The top-ranked company was Schwab, with a score of 801, followed by The Vanguard Group Inc. and Scottrade Inc. It stands to reason that the sites will only get better as they add tools and content. Whether that results in more money flowing out of the adviser channel and into self-directed accounts remains to be seen. “The planning tools they have aren't earth-shattering and they could all improve in terms of visualization on the sites,” Ms. Schmidt said. “They may not want to make it too exciting though.”