Echoes Dispatches From Economic History
Print advertisement for Merrill Lynch E.A. Pierce & Cassat, 1940
Merrill Lynch Anniversary Reminds Wall Street of Ethics
April 1 is the 72nd anniversary of the day that a merger of brokers created Merrill Lynch, E. A. Pierce & Cassatt. While the predecessor firms trace their histories back almost a century, the brokerage known in the trade as ``Mother Merrill'' came together in 1940. Amid the incessant drumbeats of protesters and strident manifestos upon resignation, amid the debates over the Volcker rule and the Buffett tax, the words of Charles Merrill serve to remind the financial community of the quiet power of doing well by doing good.
At the time of the big combination Charles Merrill already had a reputation for marketing savvy. In 1911, Merrill wrote an article in Leslie's Weekly magazine called ``Mr. Average Investor'' in which he laid out his strategy to sell to the middle-class investor. ``Having thousands of customers scattered throughout the U.S. is infinitely preferable to being dependent upon the fluctuating buying power of a smaller and perhaps on the whole wealthier group of investors in any one section,'' he wrote.
Eighteen years later he was among the first to sound an alarm. In advance of the crash of 1929 Merrill sent a letter to clients warning them, ``now is the time to get out of debt. Sell enough securities to lighten your obligations or pay them off entirely.''
He was no goody-goody, but he advocated a simple message of honest brokering and making a good living by putting the customers' needs first. There are many voices that argue loudly, and not without some cause, that the financial industry has strayed far from Merrill's vision. One man in Merrill's shoes today believes the founder's mission is still the bedrock of the firm.
``Charlie would absolutely recognize his company if he came back today,'' says John Thiel, head of the U.S. wealth management, private banking, and investment group at Merrill Lynch, which in 2008 was acquired by Bank of America. ``Every time I read things that he said and wrote I am reminded that the past is prologue.''
That prologue was laid out most clearly on March 26, 1940, when Merrill and Pierce sent a six-page letter to the partners and managers of their soon-to-be-merged firms. The document is eerily prescient of the crises that would shake finance in the decades to come.
Coming out of the Great Depression, Merrill wrote, ``The job before us involves adapting our operations so that the expenses will be in ratio to existing minimum standards of gross income; and then increasing gross income by adapting our policies to meet the standards and requirements of our customers and public opinion.''
In a rebuke to the excesses of the trade, then and now, Merrill wrote: ``We've got a job to do -- we in the security business -- a job of reestablishing faith in the security market as a place for sound investment. The sooner we recognize that the temper of living may never again be identical with what it was…years ago, the sooner we shall gear ourselves for success under present and future conditions.''
In a day when brokers were most often called ``customers' men,'' and they were all men in those days, Merrill suggested that instead they be called service representatives. ``We think that by serving the customer's interest exclusive of all other considerations, the service representatives will really be doing the best job of serving their own interest as well as that of the firm.''
In contrast to the oceans of ink poured out in criticism of the industry, in his day and today, Merrill's manifesto was a single sentence: ``The customer may not always be right, but he has rights, and upon our recognition of his rights and our desire to satisfy them rests our chance to succeed.''
The merger of 1940 gave Merrill and his partners the size and scope to realize their goals of bringing Wall Street to Main Street. Merrill Lynch was the first Wall Street firm to publish an annual report in 1941 as a way to provide transparency. The public came to view the firm's operating results as a measure of Wall Street's overall performance.
In a break with the industry, the firm also paid brokers straight salaries rather than commissions. This helped assure customers that Merrill Lynch wasn't trying to sell them bad securities.
According to Thiel, E.A. Pierce was of the same mind as Merrill. ``In Chicago, Pierce put together a fleet of buses into which they put charts and chalkboards with current quotes,'' Thiel says. ``They sent the buses out to the suburbs in what could be the first mobility strategy. Today we talk about apps for tablets and smart phones. But even then they knew the value of getting the message out that investors have to inspect before they invest.''
Thiel explains that if wireless devices make the communication faster and easier today, they also increase investors' obligations to achieve financial literacy, and the investment community's obligations to perform due diligence and suitability.
``Our industry has not evolved nearly as far as we should in terms of client focus and service,'' Thiel says. ``My job, my challenge, my mission, is to reclaim the legacy of Charles Merrill and E.A. Pierce.''
(Gregory DL Morris is a member of the editorial board of the Museum of American Finance, a Smithsonian affiliate, and a contributor to the Echoes blog. The opinions expressed are his own.)
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