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BofA’s big challenge seen keeping Merrill advisers

By Reuters Staff
September 23, 2008


NEW YORK (Reuters) – Merrill’s “thundering herd” may be stampeding into the sunset.

That’s Bank of America Corp’s fear as it proceeds with the planned $50 billion purchase of Merrill Lynch and prepares to inherit Merrill’s 16,000 financial advisers, part of the retail brokerage that Bank of America Chief Executive Kenneth Lewis has described as the “crown jewel.”

The advisers may be tempted to strike out on their own or other firms could poach them. In either case, they could take a lot of their clients — and assets — with them.

“This is an industry where a lot of these brokers look at peers setting up their own businesses, breaking away,” notes Seamus McMahon, a financial services partner at management consulting firm Booz & Co.

Also, industry analysts fear a culture clash in the making between Merrill’s independent-minded, field-office broker and the large bank’s central command-and-control hierarchy.

The advisers expect to be courted. “Of course, our phones are ringing,” said a current Merrill adviser, who declined to be identified because he isn’t authorized to speak to the press.

Bank of America will try hard to keep the advisers, especially given the current troubles in investment banking and as it counts on wealth management to be an increasingly important and potentially lucrative area.

The deal would create a company with a dominant position in wealth management and $2.5 trillion in assets.

Bank of America is expected to quickly offer retention bonuses to top Merrill advisers that will be paid out in a year. Specifics have not yet been revealed.

Merrill CEO John Thain referred to Bank of America’s highly desirable investors, who have a net worth of between $500,000 and $5 million as potential motivation for Merrill’s advisers to stay put.

Lewis said the Merrill Lynch Wealth Management name and organization would be untouched, and Bank of America advisers would be folded into the organization, increasing the number of advisers to 20,000.

But not everybody is convinced.

“There is a profound sense of sadness from a personal standpoint, but also anger,” said the Merrill adviser. “Many in the advisory space here have seen their personal wealth diminish, since so much was in Merrill stock.”

Merrill’s share price has dropped more than 70 percent since January 2007.

The stock fell 7.4 percent to $27.33 Monday on the New York Stock Exchange. When the stock deal was announced, Bank of America valued Merrill shares at $29 a piece.


Keeping the advisers may be difficult, cautioned Harold Evensky, of Evensky & Katz, a Florida-based private wealth management firm. “They might say, well, ‘Wall Street started all of this mess, so maybe I’ll decide to leave the big house environment.’”

Some advisers may join the ranks of independents, who now make up 32 percent of the industry’s work force, according to Cerulli & Associates, a Boston-based research and consulting firm.

Illustrating the trend, Fidelity Investments, the world’s biggest mutual fund firm and a top U.S. brokerage, said that 55 ‘breakaway’ brokers had chosen it as the custodian for their newly established independent advisory firms and brought in more than $7 billion in assets in the first six months of 2008.

That was more than double the assets from such clients in all of 2007, Boston-based Fidelity said in a statement.

“How does BofA get the message across that ‘We have a lot to offer you, including a huge balance sheet and branch network, in a way that doesn’t look like the Chinese taking over Tibet?,” Booz’s McMahon asked.

Still, some believe the Merrill culture may wind up dominating Bank of America rather than the other way around.

“If anything, Merrill will really influence the Bank of America culture,” said Cassandra Toroian, the chief investment officer at Bell Rock Capital.

“In general, banks and brokerages tolerate each other,” she said. “Wachovia has probably done the best job of integrating the two. It has been a three-year transition to get the cultures aligned to where they are today. There’s no short circuit, You’ve got to be patient.”

After Wachovia Corp (WB.N: Quote, Profile, Research, Stock Buzz) bought the A.G. Edwards brokerage in 2007, it moved its Wachovia Securities arm into the Edwards headquarters in St. Louis.

But the true test for adviser retention will come in October when the one-year “lockup” agreements that kept the advisers under contract expire.

“What scares the Merrill guys,” adds Howard Diamond, CEO of Diamond Consultants, a Chester, New Jersey-based recruiting company, “is what happened when Citi Global Wealth Management swallowed Smith-Barney. The SB advisers are still treated like barely tolerated step-children.”

– Bob Margolis

(Additional reporting by Muralikumar Anantharaman in Boston)

(Editing by Jeffrey Benkoe, Leslie Gevirtz)

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