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Why Merrill Lynch dropped its financial planning for the wealthy

Can a brokerage house successfully provide financial planning services for the wealthy?

A number of people on Wall Street are asking themselves this question now that Merrill Lynch & Co., the nation's largest broker, has decided to abandon this effort. Merrill Lynch last month decided to close down its Personal Capital Planning Group (PCPG), which provided customized financial-planning services for a $5,000 fee.

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Also, Paine, Webber, Jackson & Curtis recently decided to make some changes in its financial-planning operation, and has gone to outside sources for expertise, eliminating some of its in-house staff. Only E. F. Hutton has maintained a major financial-planning service, which its president, George L. Ball, says is profitable.

On the surface it appears the reason Merrill Lynch decided to eliminate PCPG, was because it wasn't profitable. The big broker, like other brokerage houses, is feeling squeezed by lower stock-market volume and lower commissions.

Perrin Long, an industry analyst with Lipper Analytical Distributors Inc., said, ''Merrill Lynch just found in order to go after the high net-worth individual, it wasn't profitable. Maybe if they direct their efforts to the average person with a scaled-down, less-personal approach, they will be more successful.'' Merrill Lynch plans to do this later this summer, offering a computerized service that will cost from $250 to $500 for individuals with a net worth of $25,000 to $55,000.

Another analyst, Joseph Spivack, of the Value Line Investment Survey, noted that brokers have some difficulty ''finding the right pricing structure.'' Furthermore, he added, ''the public is not ready to pay what it costs for the service.''

In the case of Merrill Lynch, there was a complex set of reasons why the big broker was not successful. However, the main reason, says Chester Ward, who was a lawyer working with PCPG, was because of ''bad management.''

Specifically, says Mr. Ward, Merrill Lynch structured its program so that PCPG was kept separate from the brokers' account executives. Thus, he says, recommendations made by PCPG were often never implemented.

Thomas Langan, who was the president of PCPG, agrees. ''It was a fatal decision'' by Merrill Lynch to keep PCPG independent, he says.

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In an interview at Hamilton Gregg & Co., a financial planning organization which has hired them, Mr. Langan, Mr. Ward, and Marcus V. Cole, all formerly with PCPG, painted a picture of an organizational structure that just didn't work.

At times, they said, Merrill Lynch was unhappy when the professional managers would recommend non-Merrill Lynch products. Other times, they recalled, they would recommend that an individual purchase a tax-shelter plan, only to find out it wasn't available in that person's region. They seldom recommended purchasing Merrill Lynch's insurance products -- which meant Merrill Lynch account executives did not get an insurance commission. And, because the PCPG staff was not allowed to implement its recommendations, they did not pick up extra fees for legal and accounting services that other financial planners count on.

Merrill Lynch's comment, says a spokesman, is that PCPG was ''uneconomical and its customer base too small for a company this size.'' He added that PCPG only had 2,000 customers.

Hamilton Gregg, where the trio now works, is headquartered in Falls Village, Conn., and targets its financial-planning services for the wealthy, charging a minimum fee of $6,500. Since it has no brokerage or insurance services, its main goal, says Mr. Langan, is to serve its clients. He says some of those clients will be Merrill Lynch customers who no longer will be able to use PCPG.

The former PCPG employees say they left Merrill Lynch amicably and company officials plan to refer clients to Hamilton Gregg. Mr. Gregg, chairman of the company that bears his name, said it is profitable, and is expanding its operations.

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