One-Stop Banking

Mergers Are Brewing, and Customers Will Feel It -- for Better or Worse

The implosion of two of the nation's leading investment banks has thrust commercial banks into the spotlight.

With their acquisition of investment banks and retail brokerages over the years, commercial banks have assumed a model more common in Europe, banking analysts and investment strategists said. That model -- known as a universal bank -- combines a retail bank, retail brokerage and investment bank under one roof.

"We are a generation of people brought up believing you went to Merrill Lynch for wealth management and you went to Bank of America for your checking and mortgages," said Matt Bienfang, senior research director at TowerGroup, an economics research firm. "People just don't think of Bank of America as being able to provide the same quality of investment advice, which simply isn't the case."

As Bank of America prepares to merge with brokerage firm Merrill Lynch, the big question is whether consumers will be helped or harmed by the consolidation of these financial institutions.

The average consumer's finances have become much more complicated -- with the advent of defined-contribution plans such as 401(k)s, the rise of credit card debt and the growing complexity of mortgages -- so financial planning has become more crucial than ever.

"We see consumers beginning to demand more services from their financial institutions than they've gotten in the past," Bienfang said.

In that sense, having basic banking services, such as deposit accounts and lending, as well as the more advisory functions of a retail brokerage, under one roof could be a good thing.

"This is sort of a culmination of the renaissance of retail," Bienfang said. "What this serves to do is move us a giant leap closer to holistic wealth management."

Other analysts bemoan what they see as the shrinking of the industry.

"The benefits for the consumer are slim or none," said Bob Ellis, senior vice president of wealth management for Celent, a Boston-based consulting firm that specializes in financial services. "It might be a little easier to move your assets between banking and brokerage firms. . . . The drawback is basically lack of choice. Products are going to be tied to each other. It's going to be hard to have a brokerage account at Merrill and do banking at Citi."

Less competition means consumers can at some point expect to pay more for products and services, Ellis said. Fees might go up. Innovation might go down, as commercial banks are not known for hiring people with entrepreneurial spirits.

David Lo, director of financial services research at J.D. Power, said commercial banks and brokerages tend to offer different products. For instance, he said, many traditional banks don't offer savings accounts with high yields, but brokerage accounts often are high-yielding. How the two entities will decide which products stay and which ones go is up in the air.