Case Study

MERRILL LYNCH: SUPERNOVA

GROUP 8:
Arush Bhatnagar, Labdhi Daftari,
Utkarsh Vardhan
8th October, 2018
Introduction
Merrill Lynch was founded in 1907 and it was often credited for bringing the “wall street to main
street” which also was the founder’s strategy. It opts for delivering services to the Individual
clients through stock broker and financial advisory services. Merrill Lynch was one of the
leading firms of financial services in the world and was the largest of the broker dealer firms on
the wall street as in 2003.
The best and unique features of this firm can be differentiated with other competitors:
 Wide network of 14000 financial advisors and 750 offices in U.S.
 Widest array of financial services & Products, sound advice and effective execution
 Global Partners
 Culture of Innovation
Jim Walker was the managing director and chief director officer of Merrill Lynch client
relationship group and he was also responsible for financial advisory services for individuals i.e.
retail brokerage.

Financial Advisors
Financial Advisors or FA’s are the people who were responsible for bringing the clients to the
firm through the skills which are Building relationships with the clients, more networking,
professional alliance and cold calling which is contacting the potential clients without any prior
information and it is done through telephone and direct email.
Before FA’s gets in contact with their client when their client used to call them for any trade or
to report any problem. Merrill’s provided the best services and they used to charge accordingly.
As discussed in the case that they were liable to get some compensation which was variable and
based on the quantity of the business they brought to the firm. Compensation was designed in 2
ways:
1) Percentage of revenue was generated from the commission of buying and selling of
financial products for their client’s accounts. For example, Suppose Merrill charge $120 for the
financial service i.e. buying of 1000 stock, so of the total charges around 40% was kept by the
Financial Advisors.
2) Percentage of revenue which was generated by annuitized or fee-based accounts, under
this the clients were not charged for this, but they were charged annually a small percentage of
their total assets. For example, suppose a customer has his assets of 1 million with the firm, so
that customer must pay at least 1%. FA’s are liable to keep that 1% of the total assets.
Merrill Lynch financial advisors were the best advisors of the whole wall street, they were paid
well and most of them were successful. Merrill Lynch always hired the strong players and fired
the week ones. They always gave the best service and Merrill Lynch FA’s have enjoyed the
autonomy of the job, because it was so much flexible that they were like their own company

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there was not fixed timings. Later the firm offered “The Master’s Program” under which the firm
offered a trip to Hawaii, if the FA’s Opened enough accounts. Because of this size of the book
which was filled with clients was became important and they ignored the benefits of customer
retention, how well the services are provided to the customer, and firms profitability. This was
the reason behind the innovation of supernova took place.

Customer service before supernova

1. The frequency and quality of contact- The FA couldn’t fix the clients problems as they
were busy in attending their calls and listening to their problems and weren’t able to give
them feedback and solution towards the problem. Moreover, most of the time FA’s were
busy prospecting and giving the time to the clients who quit.
2. Rapid response to problem- The fa’s and their clients were busy attending the calls of
new clients, they had no time dealing with the problems of their old clients.
3. Attention to details- This means things like being aware of the life events for a client an
impending birth, retirement, the desire to refinance a mortgage.
4. These needs are important because they represent opportunities to meet a client’s needs
by selling them what they require.

Supernova
Supernova was introduced by Rob Knapp who has been the head of Mid-West District office where
the customer satisfaction was ranked last amongst the 32 districts where Merrill Lynch has been
operating. However, in the next eighteen months, the district was ranked fourth after it
implemented Supernova within the company. Supernova has provided services to the client, client
acquisition and also a practice management model that has been driving an explosive acceleration
in terms of revenue and the overall client satisfaction where the plan has capitalized upon the
business rule which is 80-20.
The model serves a small number of customers or clients rather than focusing on increasing
number of clients every day. This has been the true essence of Supernova, which has helped the
company to serve a specific number of clients by providing them complete support in all aspects.
Prior to the induction of Supernova at the company, the financial advisors hardly met the clients,
contacted them or even solved their problems. However, with the introduction of Supernova, the
client got the opportunity to talk with the financial advisor at least twelve times a year.
To overcome the constraint of the organization, supernova was introduced in Merrill lynch.
It is a four-step process
Process of Adopting Supernova
The first step of Supernova adoption was their advertising strategy by doing ROAD SHOW
presentations made by the people who were enthusiast about supernova. Knapp decided to use
two-part pitch to “sell” Supernova.

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 1. The ultimate client experiences
2. Plan, Process and Discipline
This plan of adoption supernova gets people to move from chaos from to control. And philosophy
says once people move from chaos to control they can’t really go back.
1. 12-4-2
12-4-2 was the supernova description of what client’s minimum annual contact should be with
their fa’s, 12 months contacts mean to stay in touch and ask for financial updates and changes in
needs. 4 were portfolio reviews, and 2 were face to face meetings, this was the minimum contact.
Problems with Merrill lynch: 500 clients, time constraint to adopt 12-4-2 they needed to fix these
problems first.
2. Segmentation
There 500 clients per fa and they were not able to give time to each and every one, and some of
them weren’t even profitable, so they decided to keep the clients which gave most profit and
were loyal to the organization, Rob Knapp decided 200 were right appropriate no for the clients.
Each client which was chosen should have 1 million of annuitized asset or 10,000$ in annual
production. They first ranked them revenue generation, then by assets and finally the FA’s were
comfortable to do business with.
3. Organization
Historically FA used to work with no flow of organization scheme, which ended up having
several problems, and when Merrill studied that fa were wanting more administrative support
and help getting organized.
In the past clients used to call the fa whenever they faced a problem, FA’s can’t blame the clients
as they were not able to give them appropriate time. Under supernova they’ll speak to the FA’S
monthly, in fact they exactly when to call.
FA’s daily folder – each folder contained clients most recent information their financial plan,
amendments, information about client’s family and business which fa believed was important for
the relationship. In short, all the detail that helped FA’s to do their job.
Folder system – They got administrative support from folder system as it was merged with 12-
4-2, these meetings were placed in the fa’s calendar, with them dedicating 6-8 each day to these
meetings, Merrill lynch forced the fa to make good on 12-4-2 without increasing their burdens
Second, they made sure fa have most up-do date information for the meetings

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 4. Acquisition
The final step in the process for supernova was acquisition where Knapp suggested that each
year Supernova FAs would acquire some new high-quality clients. They decided they would
replace the least promising clients with the new ones.
The 12-4-2 was more than enough time for clients. They experienced that with 12-4-2 they could
do two things, namely:
1. Reduced one client with every new client as Knapp segmented his top 200 clients and
committed12-4-2 to them their client turnover was automatically reduced. Before they
had to do lot of selling which is not the case now
2. He founded that the best way to get new clients was through referrals/ the new clients
were impressed by his service and the way he handled them. The clients would become
his word of mouth and recommended him to their friends and relatives as they were
aware that he obviously was in search of new business.
Seeing this many FAs found that referral was a scheme to get new clients. One of the FAs lived
in an area where people working with company retirement assets were about to retire. So, she
came with an idea that she could develop IRAs (Individual Retirement Accounts) and would
become a local expert to them helping her get hew new business. Similarly, another FA was
having a client who was anesthesiologist and to understand him better he joined he subscribed to
anesthesiology journals and would attend meetings related to anesthesiology. With this strategy
he was able to get 4 new referrals and they became his clients leading him to gain capital of more
than $1 million.
The FAs of Supernova found that their greatest problem was they had to force themselves to
actively do client acquisition. The motivation was there when they initially adopted supernova
but then during the process they were not so prominent. Knapp explained that under super, way
of doing things the FAs did not have to worry about they are losing clients because they weren’t
losing so many clients as the clients never leave. He also explained that they instead had to light
the fire within themselves to get more business. This problem he termed as “Golf Problem”
Senior manager thought “gold problem” was a serious one because it immediately increased the
compensation whereas the average supernova adopters saw this as an initial small pay reduction
as they weren’t trained well during the transition period and senior managers blamed local
managers for this problem.

Transaction and Annuitized FA’s:

There were basically two types of FAs in Merrill Lynch
1. Transaction FAs: the one who were paid by charging per trade

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 2. Annuitized FAs: Unless and until they provide a certain level of service, once you are
being paid whether or not they do anything there is less incentive to contact their clients
which been solved by Supernova

Support for FAs Adopting Supernova

The first step as said was road show presentations and was called FA buy ins. The road shows
alone did not ensure buy in hence it was done by managers persuading FAs by holding face to
face meetings and making an argument in favor of Supernova.
The second step as supporting factor was segmentation. It was the most difficult part to
implement as it wasn’t easy and possible to give 12-4-2 service to all 300 clients. If the
leadership wasn’t on top the FAs would fall off the wagon.
The final step was adoption. One of the managers notices that Fs felt they were doing Supernova,
but they had not even segmented the book.
Merrill Lynch had assigned one of the employees to take up the Supernova project and
completely devote herself in it. She was asked to prepare all the strategies, plan the Supernova
process and do all the possible things
She said they could a lot more with Supernova like develop Supernova and Segmentation
software to make the work easier. Develop folder system to standardize and systemize the client
dairy.

Challenges to implementation
Supernova process and plan was defined but there were some challenges which Jim Walker
identified:
1. Economic backdrop: In 2003 when times were not good for retail brokerages stock
prices went down and trading volumes were depressed. This condition made the people
sorry and top managers decided that conduct meeting earning projections. While some of
them believed it was good time to drive any changes as during this time other firms tend
to look less into the competitor
2. Politics and recognition: The people who liked the founders tend to like Supernova and
people who had mix feelings were less positive about it. Jealousy might take place and
rewards and recognition might be less
3. Organizational leverage points: For acquiring change in Merrill Lynch required buy in
from the head of the office. The person could be called organizational leverage point. The
practices without Supernova was like the managers were trained that they should work
hoping things to get better. If not then fire them, yell them etc. While the Supernova
practices divided FA into three groups: 20% who adopted Supernova, 20% who wouldn’t
even buy into it and the remaining 60% would be given 60 hours of training over two
years and the coaching would include questions like:

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 What’s their financial process?
What’s their investment process
What’s their service delivery process etc.
4. Follow up/support: 2000 of the FAs had completely adopted Supernova while 4000
were partially. Supernova advocates believed that if Supernova was not fully adopted
then FAs could not fully avail the compensation and quality of work of life.
5. Client expectations: Once the clients became familiar with Supernova their expectation
had highly rose. Jim says that “We designed Supernova to spoil them – and it does”.
Basically, the service promises made by FAs were not fully fulfilled and never was
completely implemented.
6. Changing Role of some FAs: The individual FAs gave their advices on what investment
the client should make. But most of the Supernova FAs saw their role as asset gathering
and allocation and left the asset management to the professional asset advisor. Supernova
FAs thought that they adopted this new role as it enabled them to provide consultative
advising and assumed that risk taking would lead the to rewards in the company.
7. Misinterpretation: FAs usually called walker and showed their interest in Supernova
and asked him that they want to get “Supernova Software”. They believed that if they got
the supernova software and worked on it they adopted supernova, which was not the case.
Supernova was process oriented and not technology drive.
8. Metrics: The managers and Supernova FAs believed that they were not paid enough
according to their work they were doing under Supernova.
9. FA nature: FAs in Merrill Lynch were independent. They were fond of autonomy. If
they found put any centralized authority or orders from their same level of FAs or
manager, then they tend reject the ordered or fought with them
10. Inclusion of client acquisition: FAs whether adopted supernova or not they did not
involve their administrative assistants.

Conclusion
A supernova Financial Advisor commented that “historically, when we sold a product to a client,
Merrill Lynch made money and the FA made money.”
 Supernova helps to solve the dilemma.
 It provides a business process - not a product. Which was never there before.
Success of Supernova:
 Market errors were declined by 54%
 Revenue was increased by 1%
 $58 million Increased in Annual Profit

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Recommendations
 Proper training should be given to the FAs and client associates so that the FAs are able
to fulfill the service promised.
 The employees should be trained to run segmentation software and implement folder
system.
 Local managers should coach the average new adopters to begin acquiring as early as
possible.
 Provide Knowledge to the FA’s about their work life balance benefits that could be
gained through Supernova.
 Providing the clear vision and purpose to FA’s by filling up the communication gap, in
order to avoid any misinterpretations created about the Supernova.
 Grade and incentives Rationalization according to the compensation benchmarking
 Improving the organization culture and create discipline by bringing about
transformational change.

THANK YOU