For years I was a Merrill Lynch client.  Largely because one of my high school buddies became a broker there when he graduated from college.  When I finally had a few bucks to invest, I called my friend and became his client.  In the 1980s, this was a sensible way to do business – and Merrill Lynch's fees were largely the same as everyone else because both the stock exchange and the SEC set client fees. 

But, Charles Schwab started change in the brokerage business by launching a "discount broker" after the exchange and SEC deregulated rates.  At the time, I told my friend that I was likely to switch.  His response was to use a program offered at Merrill to lower his fees to match Schwab.  Although this was fine for me, I pointed to him that it sounded like Merrill was ignoring the real impact of competition shifts. 

Some years later, eTrade came along lowering fees for retail brokerage customers even more.  Again I told my broker it looked like time I should move on.  And again, he and Merrill lowered his fees and offered me on-line access to my account as well as research.  I stayed with Merrill, but pointed out that it seemed like Merrill wasn't really addressing competition.

Every year, for more than 20 years, there have been changes happening in brokerage.  And every year I talked to my friend about whether it made sense for him to keep doing business as usual.  Every year he assured me that Merrill Lynch knew what it was doing, and he was comfortable staying at Merrill.  As brokers failed or retired, he would "Buy their book" – meaning he would buy their list of names and accounts from them and then work to keep those clients at Merrill and with him.  By doing this, he was able to Defend & Extend his commissions even while Merrill had its struggles.  He even laughed to me about all the turnover at the district manager level (above him) and how every year fewer and fewer new brokers were able to survive.  I would point out to him that perhaps he was taking a risk by remaining Locked-in to Merrill – but he said he was comfortable and had faith in a company as big as Merrill Lynch.  "Merrill will never go away, so why should I" he would say.

Now, I'm no longer a client at Merrill Lynch.  Guys like me weren't in their "sweet spot."  Services kept being reduced, and fees went up.  Merrill Lynch isn't even Merrill any more.  Soon it's to become a division of Bank of America – if investors agree to the price.  And my high school buddy?  Well, his bonus is evaporating (read article here).  His retirement, almost totally invested in Merrill stock, has seen dramatic reduction – and could go down even more.  And he has developed no skills to do anything else.  Nor does he understand the changes in financial services so he can position himself for his next position.  He's hoping to keep hanging on – even as his benefits, pension, bonus and pay drop like the proverbial stone.

Merrill never escaped the Lock-in created years before deregulation.  Merrill never came to grips with significant changes like discount brokerage, or on-line brokers.  Worse, it ignored the growth of new competitors like independent financial advisors, and the explosion in broker services and competitive products offered via insurance agents and commercial bankers.  Looking year-to-year, Merrill kept pushing brokers to find more clients, bigger clients and sell.  And it ignored the aging of its clients, as well as the aging of its brokers.  It ignored the fact that it was increasingly dependent upon fewer brokers with fewer accounts that were all at great competitive risk.  Merrill was a sitting duck for competitors, that could compare rates and services against the old giant that kept looking weaker and more out of touch with retail clients. 

And my buddy never addressed his personal Lock-in.  He kept finding ways to stay at Merrill, and ignored the signs around him that Merrill was becoming a riskier place to work.  He kept not only his job, but his pension tied to the company as he reinforced the value of his loyalty.  But, in the end, he's now in a world of hurt.  Even if he survives into some job at B of A, his income and pension are shredded.  He could have seen it coming – but he preferred to remain Locked-in rather than look into the future and really discuss competition.  And he never allowed any White Space in his life to consider doing anything other than work for Merrill Lynch.

We can laugh at Lock-in when we see it cause other companies to do foolish things.  But when we work for a Locked-in company, we risk our future as well as its.  As employees, we have to bring up issues to management above us - cause them to focus on the future and how things are likely to be different rather than merely an extension of the past.  We owe it to bring our employers information about competitors – especially when our customers are pointing out changes on the horizon.  And we should be willing to discuss how we could change things – how we can accept the need for Disruptions so we can open up to new opportunities.  And we need to keep White Space in our lives so we are prepared to help our employers.  But, in the end, if our employer remains Locked-in to D&E tactics we owe it to ourselves to prepare for market shifts by looking for other ways and places to be employed.  When Lock-in hits home it can be exremely painful.