Merrill aiming to be big star in small towns


NEW YORK -- Merrill Lynch & Co., breaking with tradition, plans to open 250 branches in small towns across the country in an effort to blunt competition from regional brokerages and expand earnings.

"This symbolizes a shift in the way that Merrill is soliciting new customers," said Perrin Long, analyst with Brown Brothers Harriman.

Merrill, the nation's largest securities firm, is looking to smaller regional markets to help it boost earnings, analysts said.

Since 1993, the company's assets have grown just 8.2 percent )) to $603 billion. By contrast, from 1991 to 1993, Merrill exploded, chalking up a 27 percent increase in assets to $557 billion from $440 billion.

Merrill's Special Market Offices (SMOs) program "is a way we can increase our customer assets," said John Steffens, executive vice president of the firm's Private Client Group. Eventually, Mr. Steffens said, "5 percent of our assets could come from this program."

The firm said it is looking to SMOs to expand its client base of retirees, farmers, ranchers and other relatively wealthy individual investors living in small towns. In the next two years, Merrill said it plans to more than double the 100 offices it has opened in small towns since 1993.

Planned locations range from Alton, Ill., an area populated by affluent farmers, to St. George, Utah, where retirees have flocked in recent years.

The move places the firm in direct competition with Edward D. Jones & Co., which has 2,600 offices around the country, according to the Securities Industry Association. Merrill has 625 branches.

Jones has thrived by going against the tide of Wall Street firms, putting one-broker offices in small towns such as Iron Mountain, Mich., and Cedar City, Utah. Jones' brokers produce average commissions of $250,000, according to Brown Brothers' Mr. Long, above the industry average.

"Merrill's move shows that Wall Street thinks that the wealth of the nation is spread around," said Benjamin Edwards, chairman of A.G. Edwards Inc. "People are leaving big cities in search of a better quality of life."

To make the program work, Merrill must show Main Street that it is more than just a New York behemoth. That may take work. Investors often identify with companies based in their own backyards.

D.A. Davidson & Co., based in Great Falls, Mont., is a good example of a company that has capitalized on a folksy image. Davidson is known locally as "Dadco." The firm's slogan is, appropriately, "Where Wall Street Meets the Rockies."

"Merrill will find some trouble because they think differently than small-town people do," said Jim Hamilton, an Edward D. Jones broker based in Bozeman, Mont. "There will be a culture shock for a Merrill Lynch broker who goes from Chicago to Centerville, Iowa," he said.

The move will also force the firm to rethink its tradition of maintaining large offices. In the new small-market offices, the firm said it will only post two or three brokers, compared with Merrill's branch average of 25 brokers per office.

Merrill does plan on bringing some of the dog-eat-dog Wall Street culture to the heartland, though. The firm is paying up-front bonuses to lure away Jones brokers in much the same way it would woo big-city brokers away from Dean Witter Reynolds and PaineWebber.

"Merrill wants to attract the best people around," said Dale Woolhiser, a Merrill broker in Missoula, Mont.

One advantage Merrill has over its folksier competition is name recognition. "I never have to explain who on earth Merrill is," Mr. Woolhiser said.

Technological advances and lower costs have helped make it possible for Merrill to expand to smaller cities.

"It is 25 percent cheaper to operate outside of large cities because of real estate and other savings," Mr. Long said.

In the past 25 years, New York's percentage of the securities-industry employment has fallen to about 30 percent from almost 50 percent.

Brokerage firms' customers can read research reports and see real-time stock and bond market quotations on their personal computers.

The investors can also receive information from Wall Street from their fax machines.

"Look at how many people work at home now and are switched to big offices by their modems," said Merrill's Mr. Woolhiser.

Merrill Lynch is a passive minority investor in Bloomberg L.P., parent of Bloomberg Business News.

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