Welcome to Financial Advisor IQ
Follow

Merrill Backtracks on Its IRA-Commission Ban

By Alex Padalka May 12, 2017

Merrill Lynch is easing its previous outright ban on commission-based individual retirement accounts in a move it says gives its brokers and clients more flexibility, according to a memo seen by FAIQ.

The wirehouse had said in October it would no longer offer commission-based IRAs when the Department of Labor’s fiduciary rule goes into effect, originally scheduled for April but since delayed to June 9. In banning commission-based IRAs, Merrill hoped to help its brokers comply with the rule, which requires retirement advisors in all advice channels to avoid conflicts of interest with clients.

In reversing its stance on IRA commissions, Merrill’s position more resembles that of its arch-rival Morgan Stanley, which has consistently sought to give its advisors some wiggle room when it comes to the DOL rule.

In Merrill’s call to FAs this week, the wirehouse said it would offer a “limited purpose brokerage IRA” starting June 12, according to the memo.

Initially, the account will be used only for cash and bank deposits, but Merrill plans to open it up to certain additional products, including money funds, brokered certificates of deposit and employer rollovers or transfers, according to the memo. Merrill clients with at least $50 million will also be able to buy hedge funds and private equity under the DOL rule’s best interest contract exemption, according to the memo.

The exemption allows brokers to sell some commission-based investments after signing a best-interest contract with their clients. The limited purpose brokerage account will be offered in addition to the Investment Advisory Program, Merrill’s fee-based platform, according to the memo seen by FAIQ.

“We have analyzed the limited situations where recommending a fee-based arrangement might not be in a client’s best interest and have considered alternatives to IAP for these situations,” Merrill chief Andy Sieg says in a statement. “Today, we are announcing where we can offer more flexibility in a manner consistent with a higher standard of care.”

(Getty)

Merrill will also allow clients in existing brokerage-based accounts to keep their investments past the DOL rule’s scheduled implementation date, but they will not be able to make new purchases past June 9, according to the memo.

In addition, the brokerage is expanding its product range on IAP. Merrill will start offering advisory share class annuities by the end of this month and plans to roll out hedge funds, new-issue CDs and market-linked products on the platform, according to the memo.

The firm is working under the assumption that the DOL rule will start to taker force on June 9, Sieg says in a statement.

But the rule’s fate is far from certain, as a House panel has already approved a budget bill that would effectively repeal the rule, the rule’s opponents continue challenging it in the courts, and Trump’s nominee now leading the DOL has made it clear he intends to follow through on the presidential memorandum directing the agency to thoroughly reassess the rule.