While all full-service brokers strive to provide a very high level of service to clients, these firms take very different approaches to their business in many ways.
Some full-service brokers purse corporate clients, while others target individuals. Merrill Lynch and Edward D. Jones are two major firms in the full-service arena that have been around for decades. One is taking its training and sales force in a new direction while the other is sticking to a more traditional approach that has led to substantial growth in the past few years.
Origins and History
On January 6, 1914, Charles E. Merrill opened his brokerage firm at 7 Wall Street in New York. He was soon joined by his friend Edmund Lynch, and the company was renamed Merrill Lynch the following year. Early on, the company made several prudent investments that paid off well, including RKO pictures and Safeway grocery stores. In 1941, the company merged with Fenner and Beane, a commodities and investment banking firm which became the first firm on Wall Street to publish an annual fiscal report. In the 1950s, the company became a Big Board member of the NYSE. It went public in 1971 and continued its reign as the largest investment firm of its kind until it was bought by Bank of America (BAC) in January of 2009. Today Merrill operates as the wealth management division of its parent company.
Edward Jones was founded by Edward D. Jones in 1922 in Mexico, Mo. A second office was soon opened in Pueblo, Colorado and a teletype machine was used for communication between the offices. The bill for this device was so high that many more offices were opened in a straight line between the original pair in order to pay for it. (This is why there were offices in Kansas towns such as Hays, Dodge City, and Manhattan.)
Edward Jones has outlasted competitors such as A.G. Edwards to become the market-leading investment company among those brokers using a similar business model.
Differing Business Models
Both firms are full-service companies that seek to provide a comprehensive array of services to their clients, including investment management, life and disability insurance, IRAs and CDs, qualified and nonqualified plans, banking services, and comprehensive financial plans. But the similarities end there.
Edward Jones has taken a much more personalized approach to building business for its brokers, requiring them to pound the pavement in the subdivisions surrounding their offices and knock on doors to solicit clients. Edward Jones emphasizes personal service with its business model by staffing each office with just two people—a licensed broker and a branch office administrator who handles the administrative tasks. The broker is solely responsible for bringing business into the branch.
This model has worked for the company because it enables Edward Jones to establish a presence in locations where larger offices with multiple brokers would not be sustainable. For this reason, it's common to find branches located in small towns and other remote areas where larger firms are not willing to go. This model has allowed the company to thrive despite the fact that it loses about a tenth of its brokers each year due to their failure to meet quotas.
From 2009 to 2012, the company’s net revenue grew by a whopping 42% to top out at just over $5 billion in 2012. By 2017, Edward Jones revenue was $7 billion. By contrast, Merrill Lynch only grew by 10% between 2009 and 2012, topping out at $13.8 billion. By 2017, Merrill Lynch revenue had achieved $15.3 billion.
Merrill Lynch began to shift its emphasis in 2012 from pitching stocks and other individual securities to a more comprehensive and holistic approach to financial planning that includes insurance and estate planning. For years, the firm thrived by focusing on landing high net-worth individuals who had at least $250,000 in liquid assets and pitching individual stocks or other securities to these clients.
Merrill moved to an RIA-based platform that charged fees for asset management, rather than commissions. The firm also implemented a three-and-a-half year training program that incorporated the financial planning module from the CFP curriculum, executive and business development and even topics relating to emotional well-being. RIAs are paid a salary plus bonuses and commissions during the program tenure and are expected to bring in at least $10 million in new assets each year. Merrill Lynch receives about 150,000 applications each year, but only a few qualified individuals are chosen for this program. New hires are also paired with more senior advisors who can offer the benefit of their experience. Many industry and RIA experts feel that Merrill’s approach is likely to be effective and will offer trainees a much more comprehensive perspective of the brokerage business as they build their careers.
In 2010, Merrill also started a discount brokerage service known as Merrill Edge. This platform was designed to compete with Charles Schwab (SCHW), E*trade and other discount brokers that offer many additional services to their clients. Merrill did this to capture smaller investors who do not meet the investment minimums to be full-service clients. This service combines "the investments insights of Merrill Lynch plus the convenience of Bank of America banking," according to its site.
The Bottom Line
Edward Jones and Merrill Lynch represent two of the oldest and most established investment firms in the marketplace today. Prospective brokers and planners looking to get started in the business will find comprehensive training programs at both firms. Edward Jones offers complete back office support plus a branch office administrator to new hires while Merrill provides an extended training program that offers mentorship from an experienced advisor.