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Merrill Lynch Clarifies its Fiduciary Strategy to FAs

March 10, 2017

After saying it would ban commission-based retirement accounts Department of Labor’s fiduciary rule, Merrill Lynch appears to be reviewing its stance, the Wall Street Journal reports. But in a call with advisors and a followup memo Thursday, Andy Sieg, head of Merrill Lynch Wealth Management, assured FAs that the wirehouse was moving ahead with a fiduciary relationship approach to retirement accounts, say people who were on the call.

Sieg wrote in his memo, a copy of which was seen by FA-IQ, that some customers might not benefit from a fee-based arrangement, according to the memo. “We are reviewing those limited circumstances to consider potential alternatives,” Sieg wrote in the memo. A spokeswoman for the firm declined to elaborate on the alternatives to the Journal. But people familiar with the matter tell FA-IQ that two examples of instances in which a fee-based arrangement isn’t in the client’s best interest are private equity and concentrated stock positions.

In Thursday’s conference call, executives of Bank of America, Merrill Lynch’s parent company, told the wealth unit’s more than 14,500 brokers that they are continuing with their plans to transition most commission-based accounts to fee-based ones, people familiar with the matter tell the Journal. And the wirehouse already has $208 billion in fee-based retirement accounts, which is more than half of its retirement assets, Sieg says in the memo.

Merrill Lynch is also still going through with the product restrictions it has put in place on brokerage IRAs, according to the memo seen by FA-IQ. In November, the wirehouse stopped selling mutual funds in commission-based IRA accounts.

This prohibition also applies to non-tradable real estate investment trusts, health savings accounts, education savings accounts, life insurance and “special investments,” according to people with knowledge of the matter.

Furthermore, the wirehouse offers several alternatives to its traditional fee-based accounts, including self-directed and guided investing platforms on Merrill Edge, the people tell FA-IQ. The firm also recently dropped maximum fees on accounts with less than $1 million.

But for some parties, the announcements seem like a reevaluation of the strategy Merrill Lynch has taken since last fall. In October, Merrill Lynch was the first among large brokerages to announce plans to drop commission-based IRA accounts to minimize its brokers’ potential conflicts of interest complying with the DOL’s fiduciary rule.

The rule, which says it requires retirement brokers to put clients’ interests first, was scheduled to go into effect in April. Following the November election win of president Donald Trump, whose administration was viewed as largely opposed to former president Barack Obama-era administration’s financial regulation, industry watchers said that Merrill Lynch was likely to stick to its decision despite some rivals, including Morgan Stanley and Wells Fargo, opting to continue offering both types of accounts.


That was in part due to the “fanfare” following Merrill Lynch’s October announcement, which included an extensive marketing campaign boasting of Merrill’s decision to put clients’ interests first, one recruiter said at the time. Seemingly as a show of its continued commitment to the fiduciary standard, Merrill Lynch plans to launch another national campaign by the end of this month or early April with ads about putting clients’ interest first, according to people familiar with the matter.

Merrill Lynch’s decision apparently didn’t sit well with its at least some of its brokers, however. At the end of February, two veteran Merrill Lynch advisors collectively producing $1.3 million annually left for Morgan Stanley.

Their move was apparently driven by Merrill Lynch’s decision to drop commission-based retirement accounts, three anonymous sources told an industry website. Some recruiters have also said that many Merrill Lynch brokers have been frustrated with the decision.

Nonetheless, the wirehouse actually added net 129 advisors last year.

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