Case Study 2

MERRILL LYNCH: SUPERNOVA

Merrill Lynch: Supernova

Prof. Rogelio Oliva, Roger Hallowell of the Centre for Executive Development, and MIT Sloan Nippon telephone and Telegraph Prof. of Management Science Prepared this case.

It is based, in part on research conducted by Bassim Halaby, Qunmei Li, Luca Dona and Mary Schaefer of MIT Sloan.

HBS cases are developed as the basis for class discussion.

Merrill Lynch

o Established in 1907

o Founders’ strategy: Bring wall Street to Main Street

o Delivering services to individual clients (retail brokerage) through stock broker and financial advisory services.

o One of the leading financial services firms in the world and was the largest of the broker dealer firms on Wall Street in 2003.

SUPERNOVA

About

Name given to a new way to manage client relationships that originated in one of Merrill Lynch’s Indianapolis offices.

A strategy set at the top.

Father of SUPERNOVA- “Rob Knapp”. Merrill Lynch’s Mid-West District.

Client Service Before Supernova

Three aspects of a relationship were critical to client satisfaction : The frequency and quality of contact

Rapid response to problems

Attention to details

12-4-2

Was the supernova description of what client’s minimum annual contact with their financial advisor should be : 12 monthly contacts

4 were portfolio reviews

2 were face-to-face meetings

Predicated upon the completion of a financial plan for the client at the beginning of the relationship.

ORGANIZATION

•Supernova provides administrative support.

•Administrative support through Client Associates by way of daily Folder System.

•Each folder clients details.

The Supernova service promiseSegmentation

Organization You will have a multi generation financial plan.You will be contacted by FA at-least 12 times every year.Response within one hour and resolution within 24 hours

ACQUISITION(The final part of supernova)

•Each year FA to acquire some new, high-quality clients .

•Least promising clients displaced by new clients to another FA, or Financial Advisory Canter .

•FA find 2 to 4 hours everyday for client acquisition, which FAs found more adequate.

PROCESS OF ADOPTING SUPERNOVA

Spread through road-show presentations

Used two part pitch to sell supernova

The Ultimate client experience

Supernova as plan, process and discipline

Service oriented , not transaction oriented

SUPPORT for FAs

FA buy-in (First Step)

Road shows

Managers

Segmentation (2nd step)

Financial planning

12-4-2

Organization

Acquisition

Known Challenges to Implementation

As part of his decision making, he reviewed data on Supernova results to date and projections for the future.

Selected Supernova Results and Projections

Resultso Average number of clients: 208 with average assets of $ 333,000

o Upon joining Supernova transferred 14 clients to another FA (average assets $ 153,000), and 67 clients to the centralized facility (average assets $30,000)

Projections

o $ 130 million annual increase in FA production (with 90% confidence)

o $16.6 million annual reduction in markets errors ( with 90% confidence)

o Total: $58 million in annual pre-tax profit requiring “some investment” to develop a supporting infrastructure

Contd..

Economic Backdrop

o In 2003, times were not good for retail brokerages; stock prices were down, and trading volumes were depressed.

o These conditions made people in the industry tense and directed the attention of Merrill’s top managers to immediate issues such as meeting earning Projections.

Politics and Recognition

o Supernova was seen as the child of its founders.

o Professional jealousy may also have played a role in negative reactions.

Conclusion

o A supernova FA commented: Historically, when we sold a product to a client, Merrill Lynch made money and the FA made money.

o Supernova helps to solve the dilemma that created.

o Supernova enables us to earn our money for handholding, and to do it really well.

o It provides a business process-not a product. We’ve never had that before.

Thank You