This post is part of my series featuring established companies and the smaller, more aggressive or innovative rivals that may eventually succeed them.
The expression was good for decades: "Wall Street to Main Street," as Merrill Lynch (NYSE: MER) was indeed the nation's premier brokerage firm to individual investors. That mantle is in serious jeopardy as "Mother Merrill" has encountered a horrible period in its illustrious history. Many wonder if Merrill Lynch will be able to survive as an independent company or be acquired by a larger bank.
Merrill Lynch replaced inept CEO Stanley O'Neal back in October 2007 "after one bad quarter." One rule of investing is there is rarely just one bad quarter for a troubled company and Merrill is proving this. The company actually lost over $10 in earnings per share in 2007, and 2008 will be lucky to break even. The subprime mortgage and other riskier credit strategies have been the undoing of Merrill Lynch.
Coming up fast and preparing to take the title of "Main Street's firm" for individual investors is Charles Schwab (NASDAQ: SCHW). This San Francisco-based firm has stayed true to its business model since its founding in 1971 by Charles Schwab. He firmly believed then and still does, that investors need choices and a low price of execution. Schwab offers several investment products primarily to individual investors and small institutions. The firm has migrated these past 10 years to an outstanding web-based model, allowing investors to access their account information 24/7. Transaction costs are among the lowest and advice is available. The advice is not pressure-packed, but rather informative.
Stock market investors have also voted by elevating Schwab's market valuation to $24.5 billion, while Merrill Lynch's market value has tumbled to $35 billion from $80 billion. Merrill Lynch has been cutting costs and laying off personnel while Schwab has been investing in technology and key personnel. The company is poised to become the next major player in the investment services arena.
Schwab's web site is user friendly and easy to navigate for new investors. The services include access to research and trading strategies to retirement account counsel. Schwab offers basic money market funds and checking accounts for beginner investors as they become more comfortable with the many other sophisticated services.
Charles Schwab -- the man and the firm -- have stuck to their knitting these past couple of years and avoided subprime-mortgage pools and underwriting activities. The firm could easily surpass Merrill Lynch these next few years as America's premier brokerage firm.
Georges Yared is editor of YaredsGameChangers.com and author of the new report "How to Spot the Next Google."
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Reader Comments (Page 1 of 1)
6-27-2008 @ 8:06PM
l bobo timbo said...
Wow, great ad! This must be what "real" articles look like in this "blog". The nice thing is that most of the mindless fools that read this thing regularly (assuming that this is not the first and last entry, I don't know) cannot tell the difference. Thank God that I was clued in by the presence of the Jim Cramer ad that appeared in the right column. It was then that I knew we were dealing with farce.
6-27-2008 @ 8:31PM
Aaron said...
Interesting argument, but I would disagree on the grounds that Schwab's market is much more niche than Merrill's. Schwab caters to investors that know, or at least think they know about investing. Merrill, with its thousands of financial advisors, handles upper-middle class and higher investors who prefer to give their money to someone and let them handle the investing. While Merrill is facing serious problems with its finances, its wealth management services have not struggled (and for good reason - Merrill's FA's are among the best in the business). I find it unlikely that Merrill would ever lose its title as "Main Street's investor" to Schwab.
6-27-2008 @ 10:56PM
helpblackrockholders said...
I closed my Merrill accounts and moved them to Charles Schwab so I agree. Merrill did a terrible injustice to me and purchased 175k in Blackrock funds in my account without my authority. I think they only reason they didn't overturn the unauthorized trade by my broker is because they are afraid of how many others like me there are. Check out www.merrill-injustice.org and sign my blogs, let me know your out there.
6-30-2008 @ 10:56PM
JoAnna said...
Personally speaking of course, I felt Merrill Lynch was very expensive and I was made to feel like I was not important, I have since transferred my accounts to Edward Jones. I believe that they will be the next "Main Street's firm." They are not pushy, they explain anything I do not understand and the customer service is the best I have experienced. So I think the author may have not done enough research and comes across a bit biased.
7-25-2008 @ 8:27AM
Richard said...
I have been a schwab client for over 20 years. They are a fantastic company. You didn't see them in the press with the sub-prime mess. They are a discount brokerage but also a bank. They held my mortgage and were a pleasure to work with. Merrill Lycnh is an expensive shady outfit and one would do well to switch to Charles Schwab.