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Is the investing business, pressured by price competition and technological innovation, going to become untouched by human hands?
Not according to Daniel P. Tully, who has guided the Merrill Lynch & Co. bull for more than four years of incredible prosperity and growth. With the company's stock price up more than threefold and more than $500 million building each day in Merrill customer accounts, Tully steps down at the end of the year with more than $780 billion in client assets under Merrill Lynch's worldwide tent and an average annual return on equity to Merrill Lynch stockholders of 23 percent.
Tully, a former street kid in New York City who has spent his career -- more than 40 years -- at Merrill Lynch, says the key to success was uttered by hockey star Wayne Gretzky: Never skate to where the puck is but always to where the puck is going to be. Here Tully takes a look at the future of the investment business.
Q: Where is the puck going to be in the retail brokerage business?
A: The rink is getting bigger all the time, and wherever the clients lead us, that's where we will be. Part of that is asking the clients what they want, what they need. In doing that, you build a reservoir of research and databases that lead you in anticipating the changes.
For instance, when we invented the cash management account and we did the analysis, clients wanted a fair return. But people said making money was fourth. It was convenience and honesty and straightforwardness and then making money.
Q: Brokerage commissions are being squeezed. Will Merrill Lynch enter the discount brokerage business or remain what's commonly known as a full-service broker?
A: Full service means that you compete with everyone. We don't focus necessarily on the commission. Some of our products are commissionable; most of our products are not.
The commission represents a smaller and smaller portion of the Merrill Lynch revenue mix every year. The discounters will have a niche. But the commission is infinitesimal to the diversification and selection process that is involved in choosing the right asset classifications to satisfy your needs.
We're recommending now an asset allocation of 40 percent equities, 50 percent fixed income and 10 percent cash. Within those categories, I would dare say there's probably 100 permutations of which equities, which bonds, what maturities and what do we mean by cash, let alone that 35 percent of a portfolio we think should be invested in economies that may be growing faster, Latin America and so on.
Now you don't get that from a discounter. You get that from someone who takes time to ask you questions and is not just trying to be the lowest-cost producer.
Q: The comptroller of the currency is prepared to liberalize the rules for commercial banks getting into securities and insurance underwriting. What does your side of the street want?
A: We want equal regulation. We want functional regulation.
Q: As far as most consumers are concerned, what can the banks do that you can't, except offer FDIC-insured deposits?
A: That's very important to have FDIC insurance. They can take that and diversify into areas that are perhaps more risky. We just want a level playing field. We've got the Securities and Exchange Commission. Perhaps the SEC should supervise and
TC provide oversight to the securities activities of banks and others.
Q: Merrill Lynch is planning to offer an Internet trading mechanism, similar to what other brokerage firms have done. Isn't disembodied Internet trading the exact opposite of the long-term client relationship Merrill Lynch wants to emphasize?
A: I don't believe so. It will be an enhancement, not unlike the telephone. The ability to take data and take information is just one part of the mix. If you want to buy 100 of this and sell 100 of that, that's a transaction. But which 100? That's advice and counsel. Creating wisdom out of chaos -- this is what we attempt to do. For that, we believe the market is burgeoning and will continue to as the world becomes more complex.
Q: Is your revenue likely to continue to be more oriented toward fees for managing money, not just commissions for transactions?
A: Yes, that trend will continue. We want to look at you in a comprehensive, family way. We want the entire family, and we want all of the business from the entire family. We can only do that if we start off with the client as the focus, not the product that you have to sell.
Q: It's a costly way of doing business.
A: Personal service is a lot more costly than the use of a computer, etc. The advice of a professional is more important in achieving your investment goals than dealing with an anonymous voice on the other end of the telephone who picks up the phone every 10 seconds and talks to someone else and has no idea what you're trying to accomplish other than executing a transaction. We don't believe that is the way to deal in a fiduciary world dealing with people's lifetime earnings and assets.
Bill Atkinson is on vacation. His column will resume in two weeks.
Pub Date: 12/02/96