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Merrill Slashes Fees for Some Advice Clients

February 24, 2017

Merrill Lynch is keeping to a promise it made to its clients in December by cutting fees for smaller fee-based accounts by about 20%, the Wall Street Journal writes.

The wirehouse is reducing maximum fees on accounts with just under $1 million from 2.7% to 2.2%, which could mean annual savings of close to $5,000 for some clients, according to the Journal.

Merrill Lynch had told its clients at the end of 2016 that it would lower fees, a spokesman for Bank of America, the brokerage’s parent company, tells the paper.

Some clients, however, may be paying less already, because Merrill Lynch advisors are allowed to negotiate their fees, a spokesman for the firm tells the Journal.

The firm declined to tell the paper how many accounts would be affected by the change.

Fees for clients whose accounts hold between $1 million and $4.9 million will remain at 2.2%. For those with $5 million or more, they’ll stay at 2%, the Journal writes.

The cuts are part of a broader move at Merrill Lynch to transition from commission-based to fee-based business — a move also happening at some other large brokerages, the Journal writes. Proponents of the fee-based model say it’s better for investors as well as brokerages, as it provides a more stable source of revenue than commission-based accounts, according to the paper. Fee-based accounts can also bring in 60% more revenue than commission-based ones, according to Morningstar data cited by the Journal.

Merrill Lynch began overhauling its brokerage business last fall in preparation for the Department of Labor’s fiduciary rule, which requires retirement brokers to put clients’ interests ahead of their own and was scheduled to go into effect in April. In October, Merrill Lynch announced plans to stop offering commission-based IRAs, and has since said it will stick with the move regardless of whether the fiduciary rule goes into effect, as reported previously.

Some advisors, however, told InvestmentNews they’re not happy with the decision and say it has led to customers leaving the firm.

(Getty)

A Merrill Lynch spokesman told FA-IQ that clients can transition to its Investment Advisory Program or the Merrill Edge platform, which offer more choices in self-directed and guided investing. The firm rolled out Merrill Edge Guide Investing, a robo-advisor that requires a $5,000 minimum investment and comes with a 0.45% fee, earlier this month.

Other brokerages have also cut fees ahead of the implementation of the fiduciary rule. In January, Morgan Stanley said it plans to go through with its cuts even in the case of a repeal.

Meanwhile, financial advisors may end up facing further fee pressure from fee cuts at discount brokerages. Earlier this month, Charles Schwab lowered commissions and slashed expenses on market cap-weighted index mutual funds.

It remains unclear whether the fiduciary rule will go into effect in April as planned, as it continues to face legal challenges and a likely delay.

Following a February 3 memorandum from president Donald Trump which asked for a review of the rule, the DOL has sought a 180-day delay of the rule and a new public comment period, with the Office of Management and Budget now mulling over the request.

By Alex Padalka
  • To read the Wall Street Journal article cited in this story, click here.