Former Merrill brokers fear the unknown

On July 1, Merrill brokers move to the Wood Gundy back-office platform, and the firm runs for the first time as a single entity. Brokers from both sides are hopeful — although they are reserving judgment — that once the parts are bolted together the two retail forces will meld into a premier Canadian firm.

Naturally, there is some trepidation about the move on the part of former Merrill brokers. “Merrill Lynch is the best I’ve ever seen in my entire career,” says a broker from Ontario. “I don’t know what we’re getting with CIBC.”

At this point in time, fear of the unknown is the primary drag from the merger. If it’s any comfort to the former Merrill crew, however, existing Wood Gundy brokers give their firm substantially higher marks for their front-office and back-office technology platforms than the Merrill brokers do for their existing system. So Merrill refugees can expect an upgrade when the transition finally takes place.

In the meantime, both sides are on their best behaviour. Veteran brokers know organizational marriages can be tricky, and while they like what they’ve heard from management, they are waiting to see if the delivery lives up to its promise. “We’re still in the lovey-dovey stage, so we’re seeing everyone’s best side,” says an Ontario-based Merrill Lyncher, adding, “Wood Gundy can’t help but be elevated because of this merger.”

While the deal makes CIBC a bigger player in the retail brokerage business, it remains to be seen if it makes it a better player. It will be up to management to do some astute stickhandling of the merger process to bring an independent group into the bank.

So far, brokers say they’ve perceived good intentions from the combined CIBC-Merrill management team, which is dominated at the top by CIBC loyalists yet liberally seeded with former Merrill Lynchers. “I was annoyed with Merrill Lynch for dumping us so unceremoniously,” says one broker from eastern Ontario. “But I’ve been very happy with the way CIBC has handled us.”

A broker in southwestern Ontario echoes that sentiment: “Senior and upper management is terrific. There seems to be open-mindedness [and an attitude of] ‘Let’s take the best of the best from the two firms.’ They don’t say one firm is better than the other.”

The transition hasn’t been entirely free of turmoil. One former Merrill broker in the West says some politics have emerged in the name of survival, particularly from the Merrill Lynch side. “Everyone’s trying to figure out who’s going to be whose boss.” Another broker in southwestern Ontario agrees that upper management is strong at the combined firm, but says middle and lower management is weak. He hopes that, after July 1, such issues will disappear as weaknesses are weeded out and superior systems are given prominence.

One aspect of Merrill that its former sales force seems happy to leave behind is having strategy dictated from New York. The firm’s compulsory client segmentation strategy was a particular bone of contention. Following the lead of the thundering herd in the U.S., Merrill’s brokers were being forced to shunt their smaller clients off to call centres and focus exclusively on higher net-worth clients.

While brokers don’t necessarily disagree with the thinking behind the move — it is eminently sensible to devote the most attention to clients who pay the majority of your bills — they resented the way it was imposed. Merrill abandoned its retail operations in Canada, in part, because it determined there aren’t enough high net-worth clients to make its presence worthwhile.

Some Merrill brokers say they are still following that segmentation strategy for themselves — shedding smaller clients independently. So while the result may not be that different, the journey is a lot more pleasant.

If there’s an aspect of Merrill that its former brokers miss, it’s the Merrill brand, and the efforts to push that brand. Complaints range from client confusion with the distinction between CIBC World Markets and CIBC Wood Gundy to a lack of value in the Gundy brand and a lack of effort to carve out an identity.

“I think we should be called ‘World Markets’,” says a broker on the West Coast. “‘Wood Gundy’ sounds stupid; I don’t like it.” Another says clients aren’t sure why they are writing cheques to World Markets when the Wood Gundy nameplate adorns the door.

CIBC brokers have also had to live with the firm’s uncertain identity over the past few years. After changing the name to World Markets, along with the firm’s internationally ambitious wholesale side in mid-1999, it revived the Wood Gundy name in early 2000 after it seemed its Toronto brokers were the only ones who had made the switch to World Markets.

By contrast, the Merrill brokers had no question about where they stood with their firm’s venerable Wall Street name and its familiar bull logo. This was a quality they also enjoyed before Merrill came along, when they were still Midland Walwyn Capital Inc., with its ubiquitous blue-chip logo. Brokers are also quick to praise the quality of Merrill’s marketing efforts, a feature they have yet to see at CIBC.

“Merrill Lynch’s materials were beautiful,” says one broker in western Canada. “We had to pay for them, but they were quality.” Brokers say new marketing bumf won’t get to them until July, “and that’s too long to go without material.”

While Merrill’s brokers were very high on their former firm’s image and brand value, these interviews were conducted before New York’s attorney general issued a scathing indictment of the firm’s equity research practices in the U.S. — alleging that its analysts were thoroughly compromised by the interests of its investment banking division. The firm has refuted the allegations and pledges to defend itself, but the evidence released by the attorney general can’t help but tarnish Merrill’s image.

From the CIBC side, the merger is obviously a concern. After all, this is a case of a smaller fish swallowing a bigger one. And it seems the CIBC side has more to lose. The Investment Executive survey shows CIBC brokers rate their firm higher than former Merrill brokers do in 23 of 28 categories, including a slightly higher overall rating.

The folks at CIBC seem to have a notable advantage in areas such as technology, account statements, freedom and corporate culture. The only significant advantage for the Merrill Lynch side appears to be in Canadian equity research.

Perhaps the biggest uncertainty is the combined firms’ culture. As much as bank-owned firms get lambasted for their rigid cultures, Merrill Lynch apparently took cultural conformity to another level. One broker in Ontario says the Merrill culture was “almost military.” Others complain it was excessively strict, structured and linear.

Banks are hardly known for playing it loose and cool, but brokers are hoping some of the Merrill militarism fades away at CIBC. One broker in southern Ontario warns, “It’s going too much the Merrill Lynch way.” But some brokers say there is no culture yet, and they’ll wait and see what emerges.

Brokers at the new CIBC Wood Gundy seem to still be floating along in a honeymoon period after their union. They know the grim statistics on successful mergers but remain cautiously optimistic that this firm will be able to create a sum greater than its parts. IE