Fishing for Assets

By Larry Barrett  |  Posted 2003-08-01

Financial advisers at the Merrill Lynch office in San Jose, Calif., cringe just before 1 p.m. local time, and it has nothing to do with trying to snag profits before the stock market closes.

At 1 p.m., Merrill Lynch's daily video feed starts. And brokers know there's a good chance the network they rely on for their livelihoods may crash. The brokers' outdated computers strain to handle a vast amount of data fed through the network to their individual workstations.

If there's a crash, not only will Merrill's financial advisers miss out on whatever stock or mutual fund idea is discussed during the feed—they will be crippled if a client calls. A crash will prevent them from accessing client accounts until the information technology department reboots the system.

"It got so bad that they were sending out e-mails telling us what we should avoid having open at one time so that we didn't crash the system," says a Merrill Lynch adviser in San Jose.

Enter Byron Vielehr, chief technology officer for Merrill Lynch's private client group, which the firm established last year. He is gambling on a massive project—estimated to cost up to $1 billion over five years—to hand off to Thomson Financial the creation and maintenance of applications used by 14,000 Merrill advisers to interact with their big-dollar clients—those with assets of more than $1 million.

What makes this project unique? For starters, Merrill Lynch wants its financial advisers to more easily collect and share data on these key clients. The system, which uses customer-relationship management software from Siebel Systems, is designed, for example, to send an alert to a financial adviser when a client's bond matures or if the percentage of equity investment in an account exceeds a certain level.

Eventually, Merrill Lynch hopes to add more personal information, such as when a client expects a child or grandchild, or is closing in on retirement. The goal then would be to enable advisers to promote targeted products and services to each client.

Merrill Lynch "wants to have the tools to effectively target these clients and have a database of personal information that will help increase their total assets under management," says Rakesh Shetty, director of Siebel Finance. "They need to be able to make a certain number of calls to clients each year. They also want to be able to do a certain number of portfolio reviews every quarter and, most important, set up a number of in-person meetings with these clients every year."

Another plus: End (hopefully) the system meltdowns.

The new Wealth Management Technology Platform will replace the $1.5 billion, seven-year-old Trusted Global Advisor (TGA) system, which uses real-time market data from Thomson Financial and applications developed in-house.

Merrill Lynch executives say the new system, which some company insiders are calling "NextGen," began testing this month at several locations and should be completely installed and live in the U.S. by next summer. An international rollout is planned for late 2004.

Selena Morris, vice president of media relations at Merrill Lynch, says the TGA system is "starting to show its age because it's all proprietary and slower than we'd like it to be." Industry analysts say Merrill expects to save about $70 million a year on maintenance of the antiquated system, an expense that represented about 7% of its private client group technology budget in 2002.

Creating and integrating applications and information delivery systems used by financial advisers to manage customer accounts has long been considered something best managed by in-house information systems staff. These systems allow advisers to create accounts, place stock orders and build investment portfolios for its clients, especially the wealthy ones.

So Merrill Lynch's commitment to an outsourcing project of this size marks a dramatic about-face, says Susan Cournoyer, a Gartner Inc. analyst.

The Dramatic About-Face

"Merrill Lynch has a new approach to external vendors now," she says. "We've seen that shift from them partly because they were spooked by e-business and they were comparatively slow in setting up their online system. It seems that now they're more open to using external providers and freeing up their own I.T. staff to focus on strategic initiatives."

The rest of the financial-services industry will have more than a passing interest in how this project unfolds. If Merrill Lynch can pull this off, competitors on Wall Street will be forced to take a serious look at how they finance and support the backbone of their front-office information systems.

"Merrill Lynch is really saying that the technology isn't their competitive differentiator. It's their services and the knowledge that their financial advisers can provide," says Jamie Punishill, an analyst at Forrester Research in Cambridge, Mass.

In December, Merrill Lynch awarded its new Wealth Management Technology Platform contract to Thomson Financial, which provides real-time market data and investment management tools to brokerage firms. Though both Merrill Lynch and Thomson executives declined to comment, analysts familiar with the deal say Thomson will get between $800 million and $1 billion over the next five years to install the system.

Thomson Financial outbid competitors such as Reuters and Bloomberg for the contract that, if successful, could position it as the general contractor of choice for large-scale financial services projects. One industry analyst familiar with the deal says Thomson "will lose a lot of money over the next five years just to have the privilege of landing this contract."

The new platform is based on Thomson's Thomson ONE open application framework, a suite of tools for Wall Street customers. According to Thomson, the ONE system can deliver tailored features in modules such as portfolio management, investment selection and client presentations, allowing customers to pick and choose features. The system is designed to cater to various audiences in the Wall Street food chain such as corporate finance, institutional brokerage and fixed-income-market professionals.

In Merrill's case, the ONE system will combine Thomson content with Merrill Lynch's proprietary content, data and applications, along with third-party applications including Siebel Systems' customer relationship management (CRM) software for 25,000 users—the 14,000 financial advisers and 11,000 or more sales assistants, research analysts and others.

Why the change? Merrill Lynch's financial advisers work much differently today than they did in 1996, or even 1999. Years before then, each Merrill Lynch adviser was individually responsible for interacting with his or her clients. In contrast, some 40% of all Merrill Lynch advisers today work in groups. Two, three, or maybe even four advisers and planners assist the same client. Preparing reviews, suggesting new investment strategies or simply creating a wealth-management schedule involves sharing and exchanging data between multiple parties, a process that was never accounted for when the Trusted Global Advisor system was developed.

Dell desktop computers running Windows XP will power the new Wealth Management Technology Platform. A key feature: Financial advisers will get dual 17-inch flat-panel monitors—replacing the single one they now have. One monitor will display client and Merrill account information; the other will show real-time market data and video feeds. (The current system has a single screen crowded with data fields, real-time ticker quotes, Merrill Lynch product catalogs, and video feeds, making it all but impossible for advisers to quickly access and enter data while on the phone with clients.)

Shetty, Siebel Finance's director, says Thomson Financial, along with integrators from Siebel and Cap Gemini Ernst & Young, is using Siebel's basic software but tweaking configurations for Merrill's user interface. In theory, these refinements will allow advisers to efficiently search both the customer and Merrill databases to quickly gather and dispense information to these high-net-worth clients. And Merrill Lynch will direct clients with less than $1 million in assets to call centers or the company's Web site so that financial advisers can spend more time working with the wealthier clients.

This new system—if it works as promised—cannot come soon enough for Merrill Lynch, the nation's leading asset-management firm. It has seen assets under management decline to $462 billion in 2002, down by 22% from its 1999 peak, according to SNL Financial. (See chart)

To rebuild its business, Merrill Lynch is clearly going after the wealthy set. According to the World Wealth Report 2003—a study by Merrill Lynch and Cap Gemini Ernst & Young—the number of high-net-worth individuals increased 2.1% in 2002 to more than 7.3 million people worldwide. Their total assets under management grew 3.6% to $27.2 trillion last year—explaining why Merrill Lynch is so eager to target these individuals. An estimate of how many are currently under Merrill Lynch's management was not available.

Vielehr, CTO for the private-client group, was not available to discuss the project, which, according to analysts, is understandable. "This is the biggest outsourcing project in all of financial services," says Punishill of Forrester Research.

Through a spokeswoman, Vielehr acknowledges, "It's a complicated integration, but so far we've hit our marks."

Just because Merrill Lynch builds a new system doesn't mean its employees will use it.

Indeed, the San Jose, Calif.-based financial adviser says rather than depend on Merrill's sluggish system, he and other colleagues have been using alternate customer-contact and management-software such as Scottsdale, Ariz.-based Best Software's ACT! customer-management software to track clients.

"Unless the [financial advisers] are trained properly and actually use the new system, assuming it provides the functionality that's promised, it's not going to be any better than the system they already have," warns Punishill.

Gartner's Cournoyer concurs. The project's viability and success will largely be measured by how Merrill Lynch manages Thomson Financial and Siebel, as well as how the firm ensures that all its financial advisers accept this as the new way of doing business, she says.

"Time and time again we see that CRM implementations fail because the end-users either resist or aren't properly trained to use the new system," she says. "In the end, that might be the biggest challenge of all."

Merrill Lynch Base Case

Headquarters: 4 World Financial Center, New York, NY 10080

Phone: (212) 449-1000

Business: Financial services for private, institutional and government clients including mutual fund, insurance, annuity, trust and clearing services as well as traditional investment banking and brokerage services.

Chief Technology Officer, Private Client Group: Byron Vielehr

Financials in 2002: Net income of $2.5 billion on net sales of $18.6 billion.

Challenge: Replace aging wealth-management workstations used by more than 25,000 financial advisers worldwide.


  • Grow total assets under management from $462 billion (2002) past the $529 billion* average of past five years.

  • Grow company net income to $3.9 billion by 2004 from $2.5 billion in fiscal 2002.

  • Reduce information systems spending from $950 million in 2002 to $800 million in 2003.

    *Baseline estimate