On Advice

Merrill Lynch cross-selling hits the market

The firm is luring clients by reducing interest rates on mortgages by as much as half a percent

Mar 7, 2019 @ 9:16 am

By Bruce Kelly

Merrill Lynch's push for advisers to cross-sell financial services products has the potential to be a formidable competitive advantage.

Merrill Lynch and its parent, Bank of America Corp., right now are offering to shave off up to half a percent from a client's Bank of America mortgage in select markets if the client increases business with Merrill or the bank.

Cross-selling is a practice that involves financial institutions getting clients to buy multiple products and services. By all accounts it is lucrative for banks. And Merrill Lynch has made it clear it believes that clients are happier and feel more secure if their financial life, from banking to managing their money, is at one institution.

Merrill's recent efforts appear to be having an impact in the financial advice marketplace.

One financial adviser at a rival firm, who asked not to be identified, said he recently lost a client to Merrill Lynch, in part because Bank of America is shaving half a percent from the client's mortgage to win a bigger share of the client's business.

"It's hard to compete," the adviser said.

Merrill Lynch is testing interest rate reductions based on new and existing assets in seven states: California, Oregon, Washington, New York, New Jersey, Connecticut and Florida.

Clients need to have at least $500,000 in deposits or investments to qualify for the half a percent mortgage reduction. New or existing clients with a minimum $250,000 in deposits or investments with the firm before a mortgage loan closes can receive an interest rate reduction between 0.125% to 0.250%, based on the level of new assets. The firm is also offering various reductions in closing costs and lender origination fees.

"Our strategy is geared toward deepening relationships and rewarding clients for doing more with us," said Merrill Lynch spokesman Matt Card.

As this column noted last month, Merrill Lynch is embracing the practice of cross-selling, which some in the financial advice industry regard with disdain.

Since the start of last year, Merrill Lynch has been paying its nearly 15,000 advisers extra for reeling in new households and getting clients to sign up for banking services like loans and deposit accounts.

Meanwhile, many advisers abhor the notion of cross-selling. The business practice, particularly linked to sales targets, creates conflicts in a client relationship already fraught with conflicts.

Of course, Merrill Lynch is not alone among its competitors that want advisers to grab a bigger share of the client's wallet.

For example, Morgan Stanley last year introduced a pay plan that goosed brokers and financial advisers to use a new, integrated wealth management platform to grab some of the roughly $2 trillion in assets its clients currently hold outside the firm.

Compensation drives behavior, as InvestmentNews industry columnist and headhunter Danny Sarch recently noted.

Advisers and investors need to keep a tally on the internal expenses charged at Merrill Lynch or any competitor when a client thinks about changing his or her broker-dealer while chasing what is being pitched as a discount.

A client may be offered a discount on a product like a mortgage, such as Merrill Lynch is currently offering. But the internal expenses of funds used in wrap accounts or managed money programs at the new firm could be higher, eroding or eating into what appears to be overall reduced costs for the consumer.

The question is, will Merrill Lynch's most productive advisers embrace cross-selling or be turned off by the firm tying it to their pay? The firm obviously loves the opportunity, but will the most senior bulls in the thundering herd share that love?

If Merrill Lynch sees an increase in experienced advisers leaving the firm in 2019, it may get the answer.

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