The mass affluent service, launched in a blaze of publicity and hype a year ago, appears to be on its last legs. It has consistently failed to gain sufficient customers to meet its ambitious targets. Worse still, with Merrill Lynch looking for ways to quit the venture, it also risks losing one of the strong brand names that it relies on to attract customers.
Merrill Lynch is looking for ways to quit the MLHSBC joint venture.
Merrill Lynch HSBC, the joint venture set up by the investment bank and universal bank in December 2000, based its business strategy on its ability to capture a large number of mass affluent, self-directed, Internet-savvy investors into its service. Each firm committed GBP500 million to the undertaking. To date the venture has only approximately 100,000 clients spread across its three countries of operation: Canada, Australia and the UK.
MLHSBC was created because the partners saw a substantial opportunity in the online self-directed customer segment, estimating that self-directed investors constitute 25% of retail investors. Further, in the UK it estimated that self-directed mass affluents account for 25% of the total mass affluent segment.
Yet while Datamonitor does not disagree with MLHSBC’s estimates, there are fundamental problems with the service’s approach. Its business plan relied on the intersection of these two estimates – but it appears that the 25% of the market that is self-directed is not the same 25% of the market that is mass affluent. In addition, the number of individuals that are self-directed, mass affluent and willing to conduct their financial affairs online is even smaller.
Adding further uncertainty to the future of the joint venture is the fact that one of its parents, Merrill Lynch, has ordered a full review of all its operations to determine the most, and least, profitable. As a result of this review, it announced its involvement this month in talks with HSBC about winding down its involvement in the venture.
MLHSBC’s lack of sufficient customers is likely to be compounded further by the withdrawal of Merrill Lynch from the venture. MLHSBC relies upon its strong brand name to draw customers into the service. Without the ML brand and the investment expertise that goes with it, MLHSBC is very much a dead man walking.