Merrill Offers Managers a Peek Behind the Omnibus Curtain

The following is an article published on July 25, 2014 by Matthew Beaton

Asset managers can now peek behind the data curtain at Merrill Lynch — for a price.

The wirehouse is working to expand a data service that offers mutual fund providers a granular view of how their products move within the wirehouse. Merrill Lynch has kept a low profile on the program, which includes about 25 distinct monthly data reports.

The reports highlight areas such as contingent deferred sales charge (CDSC) histories, dividend reinvestments, share class conversions, average holding periods and average purchase sizes. Other data include redemption fee restrictions, systematic withdrawal plans (SWP), fund serve reject rates and error rates. For example, in the case of a transaction requiring a net asset value correction, the report would show the number of accounts impacted and transactions recalculated, according to sources familiar with the program.

Merrill Lynch sources would not go into depth on the uses and value of the data, saying only that it focuses on technology and operations and improves the servicing experience. But others note that the reports, which provide information beyond what Merrill Lynch’s revenue-sharing partners receive, can help fund companies hone wholesaling efforts.

In all, Merrill Lynch represented $2.02 trillion of the $2.47 trillion within Bank of America’s Global Wealth & Investment Management unit. That division — which includes U.S. Trust, the Merrill Edge mass affluent program and advisors stationed within retail bank branches — collectively managed about $878.7 billion in fee-based accounts as of June 30, according to the company’s earnings release. The bank does not break out fee-based assets by channel.

The goal of the new reports is to better manage fund companies’ day-to-day interactions with the home office and Merrill’s 15,000 financial advisors and client associates. Fund companies pay for the optional service, though sources declined to say how much or whether the fee is flat or variable.

The data does not bore down to individual advisors, but offers insights at the branch level, by fund family. It also offers non-fund-family-specific metrics that can be used for benchmarking purposes. About 50 of the 125 fund firms on Merrill’s platform already participate, sources say.

Beyond supporting operations and compliance efforts, the reports have applications for fund shops’ sales strategy and compensation planning efforts, consultants say.

The better fund companies can parse through omnibus sales data to understand the inner workings of the wirehouse, the more effectively they can determine which branches to target and how to approach them, says Rich DeSalvo, founder of Rich DeSalvo Consulting.

“Everyone wants to get in the advisor’s head; well, get into the head of the organization,” he says. Such intel can, in turn, help wholesalers tailor their approach and build deeper relationships with advisors.

For example, data on dividend reinvestment can point to opportunities for wholesalers to talk to advisors about moving cash dividends back into a company’s products, DeSalvo says.

But companies should develop an in-depth plan for using the data before diving into the Merrill program, he says.

Average holding periods would be useful, in particular, for sales efforts, says Tracy Gallman, a former LPL product development executive and president of Gallman Consulting Group. Such data say something about buyer behavior and the emotional drivers behind it.

“If you were to see someone purchasing your product and moving out of it really quickly, perhaps you could come up with strategies to mitigate that,” she says.

Asset managers can get Merrill’s data in three different ways: online through a website or from the home office, either electronically or in hard copies.

Merrill Lynch developed the service in response to requests from some major fund provider partners, which sources did not name. Working with the asset managers helped the wirehouse create a more efficient system that targeted managers’ specific needs, sources say. After piloting the program for a few months with the initial firms, Merrill made the service available to all fund companies.

For Merrill Lynch’s Global Wealth and Investment Management division, it offers a means to defray the cost of shareholder servicing as more fund sales flow to super-lean institutional classes that leave little room for broker-dealer compensation.

The GWIM unit reported a 25.1% pre-tax margin in the second quarter, down from a 27.6% margin in the second quarter last year.

Asset managers, by comparison, had operating margins of 39% in 2013, 37% in 2012 and 36% for the prior two years, according to theBoston Consulting Group.

The new Merrill Lynch program follows the trend — both inside and outside of the financial services industry — where companies are looking to monetize data, says Gallman of Gallman Consulting Group.

“So, rather than the data sitting idle, let’s make it useful and let’s charge for that,” she says.

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