“Two months ago, when Merrill Lynch began offering customers checking and savings accounts, the firm, known for decades as America’s stockbroker, made its vision clear: becoming the nation’s banker, too,” writes Gretchen Morgenson in Sunday’s New York Times.

“In announcing the service, called ‘Beyond Banking,’ Merrill executives bragged that it would allow clients to tap into ‘the industry’s broadest array of best-in-class products and services accessible through a single point of contact.’ “

“Merrill’s moves to become a financial superstore may well improve the firm’s profitability, making it less vulnerable to the unrelenting bear market. But some of the new offerings are having the opposite effect on some clients. At least two dozen who have used the loan services that Merrill began offering several years ago are now bringing arbitration cases against it. The melding of brokerage and banking services, they argue, left them with bigger losses than they would have incurred had they simply used traditional brokerage accounts.”

“These cases may be the first of a raft of complaints involving the hybrid lending-investment vehicles that so many financial services conglomerates have developed and sold assiduously in recent years. Once the Glass-Steagall Act was repealed in 1999, wiping away the Depression-era barriers intended to separate brokerage firms from banks, Merrill Lynch, Citigroup, Charles Schwab and others aggressively amassed a wide variety of services under one roof.”

“MariEsther M. Burnham, 41, a Merrill client, says she is a victim. Ms. Burnham, a former programmer at Microsoft, has filed an arbitration case against Merrill, saying she lost $4.06 million, or 94 percent of her money, following the advice of Joseph DiDomenico, her broker at the firm, who is now at Salomon Smith Barney. He did not return telephone calls seeking comment.”

” ‘I hired Merrill Lynch for financial advice after being solicited on the Microsoft campus,’ Ms. Burnham said. ‘They represented themselves as experts; I trusted their reputation.’ “

“But Ms. Burnham’s lawyer, Lawrence L. Klayman of Klayman & Toskes in Boca Raton, Fla., says Mr. DiDomenico failed to diversify or hedge his client’s portfolio, which consisted solely of Microsoft shares she had earned as stock options. In addition, Mr. Klayman said, Mr. DiDomenico harmed his client by recommending a bank loan from Merrill to cover the costs of exercising her options — a loan backed by her Microsoft shares — rather than a traditional margin loan. The bank loan, made under Merrill’s Portfolio Loan Reserve program, resulted in bigger fees to Merrill but larger losses to Ms. Burnham, her lawyer said.”

“Mr. Klayman said he represents two dozen other clients who have similar stories to tell of their dealings with Merrill. All of them have filed arbitration claims against the firm; altogether, Mr. Klayman said, his clients have lost more than $30 million. “

“Merrill Lynch countered that Ms. Burnham was responsible for her losses and that the loan it provided had nothing to do with them. The firm also said it had advised her to diversify her holdings.”

“But securities regulators are taking an interest in these cases. The NASD’s enforcement department is reviewing how Merrill handled accounts of Microsoft employees who exercised stock options in the late 1990’s. Last month, Ms. Burnham received a letter from an NASD examiner asking her to share her experiences as a Merrill customer.”