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Why Merrill Lynch Still Excludes Commission-Based Annuities from IRA Accounts

September 12, 2018

Following a recent reversal on its prohibition of commission-based products in individual retirement accounts, Merrill Lynch nonetheless kept commission-based annuities out of IRA options, InvestmentNews writes.

While some experts say the complex product necessitates more diligent care, not everyone agrees, according to the publication.

Last month the wirehouse reversed its ban on commission-based products in IRAs. The ban had been put in place two years previously in anticipation of the Department of Labor’s fiduciary rule, which purported to require retirement account advisors to put clients’ interests first.

But the Obama-era regulation that was partially approved last year was officially vacated in June.

Merrill Lynch’s reversal, effective Oct. 1, applies to all products except commission-based annuities, InvestmentNews writes. At the same time, clients in IRA accounts can still get into fee-based annuities, while non-retirement accounts have access to commission-based annuities, according to the publication. Few, if any, broker-dealers have taken this dual-treatment approach to annuities, InvestmentNews writes.

A spokeswoman for the wirehouse tells the publication Merrill Lynch opted to do so because it sees “important advantages to serving our IRA annuity clients through our fiduciary platform, which provides a higher standard of care and ensures an annual client review.”

And because annuities in IRAs are often bought with complex additions known as “income riders,” which require more ongoing advice, Merrill Lynch’s decision makes sense, Tamiko Toland, head of annuity research at Cannex Financial Exchanges, tells InvestmentNews.

That’s because the riders come with complex rules, and if clients don’t follow them, they risk losing out on future income that they’ve planned for, she says, according to the publication. Meanwhile, among annuities sold in IRA accounts, 67% of variable annuities and 73% of indexed annuities have income riders, according to Limra Secure Retirement Institute data cited by InvestmentNews.

At the same time, it doesn’t make sense to make advisors only sell fee-based annuities in non-retirement accounts, Jamie Hopkins, an insurance expert at the American College of Financial Services, tells the publication. That’s because there would be far fewer annuity products available, he says, according to InvestmentNews.


But Sheryl Moore, owner of consulting firm Moore Market Intelligence, isn’t convinced, the publication writes.

"It doesn’t hold water with me," she tells InvestmentNews. "If you’re saying annuities are more complex products, you have to apply that same standard to all annuities.”

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