Examining Merrill's Motives

Some skeptics are raising questions about Merrill Lynch's(MER Quote) motive in merging its asset management division with BlackRock(BLK Quote).

The issue centers on the deal's unique structure. Under the merger, Merrill is surrendering its mutual fund unit to BlackRock in exchange for a 49.8% stake in the crosstown bond fund specialist. Merrill billed the transaction as a way to keep significant skin in the lucrative asset management game while freeing up capital to invest elsewhere.

Others wonder if Merrill's goal was less noble. Could the deal have been a way to get around regulators' distaste for brokerages that push in-house mutual funds, while still harvesting the benefits?

"To me, this is very perplexing," said Richard Bove research analyst from Punk Ziegel & Company. "Why would you give up control of a business that is growing like Merrill Lynch's investment management group?"

The way Bove sees it, Merrill -- since it's now a major participant in BlackRock's earnings -- has a big incentive to push BlackRock products to its clients. That the funds now bear the BlackRock name also gives Merrill Lynch brokers a way to hide that interest.

Merrill was quick in its efforts to squelch such criticism last week. Bob Doll, the chief investment officer of the Merrill Lynch investment management group, said in an interview with TheStreet.com that conflict issues had "zero" to do with the transaction. The deal, he said, provides brokers with more freedom in product sales, not less, and extends Merrill rebranding that would help grow business outside of the firm.

Many analysts defend that position, noting that Merrill Lynch has been at the fore of efforts to encourage "open architecture," or the separation of asset management from the financial advisers who sell their products. They say the combination of BlackRock's fixed-income products and Merrill Lynch's stock funds offer brokers an independent name with a variety of investments.