Skip to main content

You are here

Advertisement


Merrill Announces Post-Fiduciary Regulation Shift for Retirement Accounts

The Department of Labor (DOL) may have left open a door for commission-based retirement investment advice in its fiduciary regulation, but a major broker-dealer has decided to take a pass.

Last week Merrill Lynch announced that it would no longer give retirement savers the option of paying a commission for trades after April 10, when the new fiduciary regulation takes effect. After that date, investors who want a retirement account at the firm will instead pay for those services via a fee based on a percentage of their assets, rather than taking advantage of the DOL’s Best Interest Contract (BIC) exemption, along with its numerous required conditions.

“We have determined that for most of our Merrill Lynch clients, the best way for us to deliver retirement-related investment advice that meets the fiduciary standard is through our Investment Advisory Program. In addition, we are seeing clients increasingly moving more of their assets (e.g. taxable, tax-deferred) into investment advisory as well, and we expect that trend to continue.”

More precisely, while Merrill said it will not use the BIC exemption “to service or support ongoing IRA brokerage account activity,” the firm did say that, “when appropriate, we will use this exemption to recommend enrollments in our Investment Advisory Program from a retirement client’s IRA brokerage accounts, or rollovers from ERISA 401(k) plans.”

The firm indicates that clients who traditionally would have been served by the commissions-based IRA brokerage platform will instead be directed toward other offerings, including the broker-dealer’s robo-advice platform. The Merrill Lynch One platform, for example, will continue to offer a single, asset-based fee schedule, “helping [the firm] to improve the client experience and to provide increased transparency into fees, risks and outcomes. We also offer robust self-directed and guided investing channels through our Merrill Edge platform, providing clients with additional flexibility and choice.”

Through Merrill Lynch’s Investment Advisory Program, retirement clients have access to “a full suite of investment products and services, personalized strategies, automatic rebalancing of their asset allocation, and ongoing investment advice from a dedicated financial adviser.” Expenses in that program are based on the amount of assets, and the fee doesn’t vary depending on investment recommendations.

Legacy retirement assets, those in a Merrill Lynch IRA brokerage account before April 10, 2017, can remain in that account, and will continue to have the benefit of investment recommendations to hold or sell after April 10, 2017. However, after that date those retirement clients won’t be able to add to legacy assets, or obtain investment advice about new purchases in their IRA brokerage accounts.

Aware that the broad change in retirement savings will force some investors to pay more, Merrill has indicated that it will give brokers flexibility to discount fees for those investors. The Wall Street Journal reported that, hypothetically, an investor with $1 million in a fee-based retirement account at Merrill would be charged about 1%, or $10,000, annually. If that same investor had money in a commission-based IRA, and completed 20 equity trades, he or she would pay at least $2,500 — although that could fluctuate higher based on the size of the trades and other investing fees.

Merrill Lynch is also gearing up to provide “extensive training” for its financial advisors on DOL’s rule, which will “further enable them to help retirement clients navigate the DOL rule, maximize its benefits and minimize any short-term disruption,” Merrill said.

In August, Edward Jones announced that it planned to curtail mutual-fund access for retirement savers in accounts that charge commissions, while cutting the investment minimums on others.