Burill & Houseman, the predecessor of Merrill Lynch, was founded in 1885. The current holding company, Merrill Lynch & CO., Inc, was formed in 1973. Currently, Merrill Lynch provides investment, financing, advisory, insurance and related services and products on global basis, this through its subsidiaries and affiliates. As we will soon see, the number of services greatly surpasses that of Charles Schwab, and includes securities brokerage, trading and underwriting, strategic services, investment banking, asset management, securities clearance services, equity, debt and economic research, banking, trust and lending services, insurance sales and underwriting services, investment advisory and various record-keeping services.

Because the variety of services offered is so big, Merrill Lynch has organized its business in three different business segments; the Private Client Group (PCG), the Asset Management Group (AMG) and the Corporate and Institutional Client Group (CICG). Often, many different Merrill Lynch subsidiaries and affiliates will participate in the facilitation and consummation of a single transaction. The organizational structure of Merrill Lynch is designed with just this in mind, and is meant to enhance the delivery of services to the company’s various global clients. Merrill Lynch opened its London office in 1960, and expanded into Japan the following year. Since then, Merrill Lynch has established itself in all the major financial markets worldwide, and currently organizes its foreign operations into sex regions.

The Charles Schwab Corporation is a small company compared to Merrill Lynch, and offers a much more limited number of services. David Pottruck, Co-CEO of Charles Schwab, comments that "We really are a full-service brokerage firm". In 1986, the Charles Schwab Corporation (CSC) was incorporated, and currently offers brokerage and related financial services through its primary subsidiary, Charles Schwab & CO., Inc. The latter was incorporated in 1971, and entered the discount brokerage business three years later. Additionally, Schwab Capital Markets L.P. (SCM), is a market maker in NASDAQ and other securities. This company was acquired in 1991, and provides trade execution services primarily to broker-dealers and institutional customers.

CSC has several other subsidiaries in addition to the above-mentioned, of which Charles Schwab Investment Management Inc. (CSIM), The Charles Schwab Trust Company (CSTC) and Charles Schwab Europe (CSE) are the most significant. The first of these was incorporated in 1989, and is the investment advisor for Schwab’s proprietary mutual funds. CSTC is on the other hand a trustee for employee benefit plans, and was incorporated in 1992. CSE, a retail securities brokerage firm, was acquired in 1995 to expand Charles Schwab’s international operations, and is located in the United Kingdom.

To make a comparison possible, it is necessary to split up the services offered by Merrill Lynch, this to get a more focused picture of the business areas where the latter company is in competition with Charles Schwab. I will in other words attempt to focus on Merrill Lynch services that can be compared to the brokerage and related services that are offered by Charles Schwab. The latter company is, relatively speaking, a newcomer on the market, and is famous for having created its own niche when entering the market in the early 70s. When the Securities and Exchange Commission (SEC) mandated a 13-month trial period for the deregulation of certain brokerage transactions, Charles Schwab was quick to create a new kind of brokerage. In 1974, when this happened, no one had heard of discount brokerage, yet today it is a known term describing a brokerage house that executes orders to buy and sell securities at commission rates much lower than those offered by the competition. In one sense, Charles Schwab started targeting price sensitive customers, generally individuals without much need for financial advice. Merrill Lynch was then, as it is now, a full service broker, and does as mentioned offer a much wider range of services than Charles Schwab. This distinction between the two companies is currently starting to disappear, yet it is still interesting to see how the companies traditionally have targeted different market segments.

The earlier mentioned statement by David Pottruck shows that Charles Schwab now considers itself to be more than a discount broker, this as the company is attempting to adapt to new customer needs and new customer segments. Discount brokering is, however, still Schwab’s main business, and mainly targets customers who prefer to make their own investment decisions. 5,600 independent, fee-based investment advisors manage about 10% of Schwab’s client accounts and 30% of Schwab’s client assets. Schwab’s offerings include 340 branch offices in addition to phone and online trading. The company serves a total of 6,6 million accounts with 725$ billion in client assets. More than half of these accounts are online accounts, which also make up almost 50% of the assets. Charles Schwab reports that the principal value of securities transactions through its online site is around 20 billion dollars weekly.

Merrill Lynch is famous for having introduced mass-market investing. Its founder, Charles Merrill, is known as the man who brought Wall Street to Main Street, this as his company started offering personal service in the early 1920s. The company has since expanded to the offer services in the many different business fields described above, and is thus a much less specialized company than Charles Schwab. Just this has caused many to argue that the company is not versatile enough to adapt to the new times. Merrill Lynch is especially being accused of having missed the ramp on the information superhighway, and the company obviously was late at discovering the new channel that has become so important to Charles Schwab. Still, it has to said that Merrill Lynch’s client base, of which a large portion are companies, perhaps can not be served online to the same extent as Charles Schwab’s customers. The latter are generally individual investors, and Charles Schwab has had an easier job than Merrill Lynch has in bringing its services online, this in the sense that the former offers a much more specialized service.

Still, it is interesting to question why Merrill Lynch has not been more aggressive in terms of internet marketing, and some will perhaps argue that Merrill Lynch’s conservative business profile is to blame. Yet, there are certainly more reasons why Merrill Lynch has been so hesitant. Charles Schwab, founder of the company that bears his name and current Co-CEO, says: "I see the Internet as the single most empowering force for the individual investors. It allows people access to the world of information, giving them the ability to analyze choices, make decisions and transact business". This might obviously suit a discount broker very well, but constitutes more of a challenge to a company like Merrill Lynch, which specializes in offering advice and other services in addition to the mere transaction. Charles Schwab released DOS-based finance applications as early as in 1984, and the company has since then proven that it is well aware of the opportunities offered by information technology. The company released its site on the World Wide Web in 1995, this two years before Merrill Lynch introduced Merrill Lynch online in 1997. Evidently, these two years constitute light-years in terms on Internet development. Additionally, while Charles Schwab attacked the new channel in an aggressive manner, acquiring web-based discount broker ShareLink in 1995, Merrill Lynch initially went online with a very limited web site. Charles Schwab went live with Internet trading in 1996, launched its first international web site the same year, and reached two million online accounts already in 1998. Merrill Lynch did not introduce similar services before 1999, this two years after their web site’s initial release. Almost needless to say, Merrill Lynch has some serious catching up to do.

While Merrill Lynch has been accused of being slow at handling modern technology, Charles Schwab is facing some criticism for becoming too much like its competitors. In June 2000, the company acquired U.S. Trust, a company that offers many services similar to that of Merrill Lynch. The issue is consequently if Charles Schwab will try to target new market segments by moving into the fields dominated by companies like Merrill Lynch, or if the company will continue to act as the world’s leading discount broker. Evidently, many full-service broker services can be done more efficiently using the Internet. The WebShops offered by Charles Schwab constitute an example of this, and the company uses them actively to teach investors how to make the most out of trading on its web site. Additionally, the opportunity cost can prove itself to be quite big if Charles Schwab does not take full advantage of its favorable position online. An additional challenge for Charles Schwab is to expand its presence abroad, this as it at the same time continues its domestic expansion. While Charles Schwab only had 222 U.S. offices in 1994, it had 368 by the end of 1999. Yet, compared to Merrill Lynch’s employee count of 67,200, Charles Schwab’s 18,100 employees illustrate that a massive expansion would be necessary to compete with Merrill Lynch offline. Yet, there are good arguments for why Charles Schwab should focus on protecting its current market, and also for why Merrill Lynch should consider entering it.

Charles Schwab’s profit and operating margin for this year is 13,4% and 23,1% respectively; Merrill Lynch’s numbers are only 9,1% and 13,1%. This certainly should be considered an incitement for entering the discount brokering industry, yet it is likely Merrill Lynch will consider such an offensive move a threat to many of its already existing products. Currently, Charles Schwab appears to be a much more offensive company, this as the company is far ahead in terms of online brokering. Yet, Merrill Lynch can still play on its powerful brand name, and also on its strong position internationally. The company was active abroad even before Charles Schwab got started, and should therefore make sure to manifest its strong position internationally. Additionally, Merrill Lynch can attempt to tie up with competing online brokers; this as I believe trading online to a large extent will make the help of advisers unnecessary. Merrill Lynch might have to play on different instruments to keep its business clients, yet I have for the sake of comparison chosen not to focus on this aspect, this as Charles Schwab mainly serves individual investors.