Robert Sobel

N.Y.S.E.

Merrill clearly had a talent for salesmanship, and the firm did moderately well. He was fascinated with selling as a profession, and this led him to attempt underwritings of retail establishments, the first of which was McCrory Stores, the initial Merrill Lynch offering, coming in 1916 and earning the firm $300,000.

By the time Merrill and Lynch entered the Army in 1917, they were millionaires. They left the firm in the hands of associates, most of whom began as salesmen. On their return in 1918, they picked up where they had left off and, after surviving the postwar slump, did well during the great bull market. Merrill Lynch was not a major underwriter during the 1920S, nor one of the larger houses. In fact, Merrill did much of his brokerage business through E.A. Pierce & Co., then the biggest wire house on the Street. A good deal of his time was spent in taking retail chain operations public and serving as their advisor. S.S. Kresge, Lane Bryant, Grand Union, Lerner Stores, and Western Auto Supply were among the more important Merrill Lynch undertakings. Merrill was also involved with Melville Shoe, J.C. Penney, and First National Stores; in 1926 he helped form Safeway Stores and remained a force in that firm for the rest of his life. He was not considered a major Wall Street figure, however, and certainly not one of the leaders of the bull market. Nor did he devote much time to promotion; in that period such encouragement was not needed, and, in any case, the newspaper columnists and speculators did a better job than any investment banker or broker. Rather, Merrill was considered a bright young man of no particular depth, a person with interesting ideas in the area of mass merchandising and, in the 1920S, something of a playboy. He also held conservative investment ideas, and his market letter, sent to clients, often stressed the dangers of speculation in a bull market. Because of his caution, Merrill Lynch's brokerage business suffered, but he more than made it up with underwritings.

By early 1928, Merrill had become convinced that stock prices were far too high and that a crash was imminent. He was not alone in this, but, still, his persistence bothered his colleagues, who suggested he see a psychiatrist. According to a company legend after a few sessions the doctor told Merrill he was perfectly sane and healthy, and then went out and liquidated his own portfolio. Whether or not this was true, Merrill mailed an investment advisory to clients on April 1, 1928, in which he wrote that his firm currently was underwriting only companies with small debts, because bad times were ahead. 'We do not urge that you sell securities indiscriminately, but we do advise in no uncertain terms that you take advantage of present high prices and put your own financial house in order.' He concluded: 'We recommend that you sell enough securities to lighten your obligations, or, better yet, pay them off entirely.'

Merrill later told of a visit to outgoing President Calvin Coolidge in which he urged him to issue some kind of statement warning speculators of coming dangers. Coolidge agreed the situation was bad but refused to act.

Merrill returned to Wall Street, and shortly after the crash transferred all his brokerage clients and employees to E. A. Pierce and invested $5 million in that house. For the next eight years, Merrill Lynch dealt only in underwritings, and since there were not many of these, Merrill concentrated on having a good time at his homes in Southampton, Palm Beach, and New York. He showed little interest in Pierce's reform efforts during the mid-1930s, although his sympathies were with the commission houses in their fight against the Old Guard.

Lynch died in 1938. The two men had had disagreements during the 1930s, and Lynch's death seemed to jar Merrill out of his semilethargy insofar as Wall Street was concerned. Then, in 1939, E.A. Pierce & Co. was in financial difficulty and, in fact, close to dissolution. Winthrop Smith, an old Merrill Lynch man who had gone over to Pierce in 1930 and had become a partner, asked for and received permission to invite Merrill to join the firm and help save it. Smith's invitation, combined with Merrill's $5 million investment and his desire to reenter the business, led him back to Wall Street. He merged his old firm with Pierce and another concern to form Merrill Lynch E.A. Pierce & Cassatt in 1940. At first the company did poorly, losing $308,000 its initial year. Then, in 1941, Merrill negotiated a merger with Fenner & Beane, a New Orleans-based brokerage, to form Merrill Lynch, Pierce, Fenner & Beane.

This was a large operation, one of the biggest in the industry, but during the war progressed little. Then, in 1944, Merrill suffered a heart attack, and Smith took over much of the day-to-day operations. From that time until his death in 1956, Merrill devoted his efforts to public relations and a handful of accounts, Safeway in particular. But his most important work lay in the development of the firm's sales program.

Merrill made a valiant effort to 'professionalize' brokerage. Realizing that the broker was the most significant person in the organization, since he represented the firm insofar as clients were concerned, Merril scrapped the old ways and fashioned new ones that he hoped would create a feeling of confidence in investing. Merrill Lynch would charge no service fees, which were the rule at the time and so discouraged small investors from opening accounts. Other firms had training programs in the past, most of which were really orientations to essential operations. Merrill put forth a new program, in effect a school, which taught his personnel every aspect of the business. Particular stress was placed on the training and indoctrination of young securities salesmen—whom Merrill insisted be referred to as account executives. Most important, Merrill paid his account executives straight salaries, not commissions, as was the case in every other brokerage. And he made certain investors knew this, doing so through an intensive publicity campaign. The Merrill Lynch customer's man would not press clients to buy or sell stocks, or try to 'churn' accounts to develop commissions. Instead, he was said to be there to offer a service. Of course, account executives who did not perform well were dismissed, and in practice the drive for turnover was as great at Merrill Lynch as elsewhere. But the atmosphere was different, and the public realized it. Finally, Merrill guaranteed his people would not suffer due to a loss of commissions. He instituted the first profit-sharing plan in the industry, one in which all employees participated.

As a result, Merrill Lynch attracted solid, substantial, and, for the most part, franker customers' men than most other brokerages. It was no place for the 'go-getter' or 'hot shot,' who could earn larger commissions at other houses. This, too, was by design, for Merrill wanted average Americans, not speculators, to be comfortable at his brokerages and with his customers' men. His research facilities were also geared to this group. Merrill Lynch account executives were told to recommend only stocks suggested by the research arm, and these tended to be on the more conservative side. As Merrill put it in 1946, 'Our business is people and their money; and we must draw the new capital required for industrial might and growth not from among a few large investors but from the savings of thousands of people of moderate incomes. We must bring Wall Street to Main Street—and we must use the efficient, mass-merchandising methods of the chain store to do it.' Thus, Merrill combined the zeal of an evangelist with the experience he learned in the retail business. 'We owe them this service for doing business with us, and they owe us nothing but the minimum commissions prescribed by the New York Stock Exchange. We must preach to all, "Investigate, then Invest," and we must practice what we preach.'