Examining Merrill's Motives

Separately managed accounts are a unique asset management tool that provides rich clients with specialized fund management. Instead of clients' portfolios being grouped with thousands of others and traded based on a general portfolio goal, these particular high net-worth individuals get fund advice for their individual needs.

BlackRock's fixed-income expertise will be especially attractive to Merrill Lynch's separately managed accounts because the firm can package tailored fixed-income products for these clients. As the client base ages, fixed-income products make up an even greater percentage of its clients' portfolios.

"Demographically, we are going into a society that will be aging," said Denise Valentine, a senior analyst at Boston-based financial research and consulting firm Celent. "The most common investment is fixed-income securities. This large entity with huge distribution capability will help give private clients what they want."

Individuals with separately managed accounts are more likely to stay with a firm, and are also more willing to pay for the service. The partnership could create a unique advantage for this area of the business, analysts say.

But that is not what the regulators wanted, according to Bove.

If Merrill Lynch "loved BlackRock's products, what prevented [the company] from selling them before?" said Bove. "Why are they so excited about it now? Because Merrill owns 49% of BlackRock."

Meanwhile, a Merrill Lynch spokesperson continues to argue its party line: Merrill Lynch is hoping to grow its business outside of its in-house private client group by rebranding with the BlackRock name. Financial analysts at other firms who had been reluctant to sell products managed by Merrill Lynch won't have that issue.

Still, with Merrill retaining a 49% interest in BlackRock, a little confusion about who is benefiting from the sale of a particular fund can't hurt.