You're Too Late, Merrill

Talk about jumping into a crowded swimming pool at the wrong time.

Bank of America's (NYSE: BAC  ) Merrill Lynch is diving into the online discount brokerage game this week, hoping to hook young investors who haven't amassed the portfolio girth to be worthy of its full-service slate of advisory services.

Bank of America will be transferring existing clients of its online brokerage unit to Merrill's discounting arm, incredulously called Merrill Edge. Yes, the name clearly implies that even self-directed investors will have an "edge" here, but my initial impression was of Merrill's customers dangling from a cliff ledge. Merrill Ledge?

A cynic will naturally wonder if the strategy is flawed. Once investors get a taste of low commissions and the joys of due diligence, it won't be easy to convince them to pay up for guidance or fall for load-laden mutual funds like their ancestors did.

However, even if Merrill's intentions were to strictly make a splash in the discount space, it sure is picking a crummy time to dive into this market. 

Price wars have forced the leading players to slash their commission schedules. That's welcome news to individual investors like you and me, but not so good for shareholders of E*TRADE (Nasdaq: ETFCD  ) , TD AMERITRADE (Nasdaq: AMTD  ) , or Charles Schwab (Nasdaq: SCHW  ) .

Between having to subsidize money market funds in this low interest rate climate to the one-upmanship of eradicating trading commissions on select ETFs, it's not as easy to make money in the discount brokerage space as it used to be.

Don't just take it from me. Analysts see Schwab, TD AMERITRADE, Interactive Brokers (Nasdaq: IBKR  ) , TradeStation (Nasdaq: TRAD  ) , and optionsXpress (Nasdaq: OXPS  ) all posting lower earnings this year. E*TRADE is the lone exception, but analysts simply see it posting a narrower deficit.

What's Merrill's "edge" here? Sheer brazenness or dreadful timing? With so many discounters trading well off their highs, Bank of America would have been better off entering this niche by acquiring an established player on the cheap.

Then again, I'm not the one living on the Edge.

In the market for a new discount broker? The way that rates and initial deposits are bouncing around, I can't say that I blame you. Check the sponsored broker comparison table in the Discount Broker Center to see if you can find the bargain-minded brokerage outfit that's right for you.

optionsXpress, Interactive Brokers, and Charles Schwab are Motley Fool Stock Advisor selections. Try any of our Foolish newsletter services, free for 30 days. It's more than a fair trade.

Longtime Fool contributor Rick Munarriz believes in self-service gasoline pumps and self-service stock brokerages. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (1)

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  • Report this Comment On June 24, 2010, at 3:48 PM, MattZN wrote:

    Well, I'd think it would be obvious. Given the choice between losing the investor entirely to a discount brokerage and being able to keep the investor in the BofA sphere via their own discount brokerage, which do you think BofA would prefer?

    At least if the investor is still in the sphere BofA can cross-sell other services to him or her, for example by offering seamless integration with bank and credit card accounts, and so forth (similar to what USAA offers).

    What does the stock market action of existing discount brokerages have to do with it? Nothing. They are still profitable businesses after all, just not nearly as profitable now that so many are in the game.

    -Matt

  • Report this Comment On June 24, 2010, at 4:49 PM, TMFBreakerRick wrote:

    Matt, fair points -- but even under the thesis that this is an incremental move for BAC/Merrill, why did it take THIS long? Why not come in earlier before the leading discounters signed up millions of clients apiece?

  • Report this Comment On June 29, 2010, at 10:09 AM, stmmmd99 wrote:

    I'm with BoA now and I think I will be moving. I was with Quick and Reilly before they got bought out by BoA, and I made at least 6 trades a year to avoid the maintenance fee, but with the Merrill Edge maintenance fee you need 15 trades a quarter to avoid the $25 quarterly fee. I'm a buy and hold guy so I'm not going to hit that level. So, so long, BoA and Merrill Lynch! You've just lost my business!

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