Some Merrill Lynch advisers upset with move away from commissions

Advisers say commissions serve certain clients better and investors who prefer them are pushing back

Feb 21, 2017 @ 2:47 pm

By Greg Iacurci

+ Zoom

Some advisers at Merrill Lynch are not happy with the wirehouse's newly minted policy of embracing advisory over commission relationships in retirement accounts.

Ron Edde, president and chief executive of Millennium Career Advisors, a recruiting firm, said he's seen a range of reactions from advisers "from frustrated to furious."

One Merrill Lynch adviser, who asked to remain anonymous out of fear of reprisal by his company, called Merrill's decision "unethical" and "so wrong."

Another Merrill Lynch adviser, also requesting anonymity, received a threat from at least one client that the client would seek out a new adviser if forced to switch a retirement account from commission to advisory. Advisers are losing "very good clients" with millions of dollars in assets because of Merrill's policy, the adviser said.

Merrill Lynch, which has roughly 14,000 advisers, announced in October that new, advised IRAs will exist in a fee-based environment — or, one without commissions — beginning April 10 this year. Advisers are currently in the process of transitioning several brokerage clients to advisory accounts.

"The way this came down was tantamount to sending down the 10 Commandments off Mount Sinai," Mr. Edde said, referring to advisers being forced to follow the new rules. "Advisers don't like to get pushed around like that, and they can vote with their feet at any time."

The proclamation was a response to the Department of Labor's fiduciary rule, which requires advisers to adhere to a fiduciary standard when providing investment advice in retirement accounts, such as 401(k)s and IRAs. That's more stringent than the current "suitability" standard for brokers.

Merrill is one of only a few broker-dealers, including Commonwealth Financial Network, that decided to scrap commissions in new, advised brokerage retirement accounts in the wake of the rule, which became final in April 2016. It's the only one of its wirehouse peers that has, to date, decided to shift to fee-based business.

The advisers reached by InvestmentNews who asked for anonymity said they believe some of their clients deserve choice between commissions and fee-only service, and that some clients, especially buy-and-hold investors, are better served by business conducted on a transactional basis.

Obviously, the grumblings of a few Merrill Lynch advisers don't necessarily extend to the firm's broader adviser ranks. But they do indicate at least a certain level of dissatisfaction.

"When you do something that is a universal strategy to a brokerage force of 14,000, there are going to be negative consequences to a significant portion of them," said Danny Sarch, founder and owner of recruiting firm Leitner Sarch Consultants.

The Merrill adviser who called the firm's decision unethical said he's been notifying clients about the transition and their potential options for about a month.

Those options include moving to Merrill One, the firm's investment advisory platform, or onto Merrill Edge, where clients can use a self-directed brokerage platform or the firm's Guided Investing robo-adviser. Clients also can grandfather in an existing brokerage IRA, but won't be able to conduct additional trades beyond selling securities.

"Advisers have to go through this rigamarole for any client with commissionable accounts," Mr. Edde said. "It's a big pain in the rearend."

Or, clients could find a new adviser. That happened to the adviser who called the move unethical; he had a client leave rather than switch to an advisory account. (He concedes that he didn't mind losing that particular client.)

Moving to fee-based accounts is a way Merrill Lynch is trying to avoid the fiduciary rule provision known as the best-interest contract exemption, seen as one of the more onerous parts of the rule. The BICE allows for receipt of commission payments for advice, but brokerages must enter into a contract that exposes them to potential investor class-action lawsuits.

"A financial adviser may decide to look for another firm that is interested in using the [best-interest contract] and will offer both types of accounts," Denise Valentine, senior wealth management analyst at Aite Group, said of advisers at firms such as Merrill that are moving away from commission accounts.

The most recently available adviser headcount figures don't indicate attrition among Merrill advisers. The firm saw net year-over-year growth of 129 advisers as of the end of 2016.

For its part, Merrill Lynch believes the shift to fee-only retirement accounts is in clients' best interests. It launched an advertising campaign focused on this theme last year.

"A higher standard of care for clients is our top priority," said Matthew Card, a spokesman for Merrill Lynch. "We are focused on what our clients want from us for their retirement accounts, which is to act in their best interest and minimize conflicts in our advice."

The firm also is providing clients with pricing information for each platform option, and offering "pricing flexibility" to clients who choose to transition a brokerage account to the firm's investment advisory platform, Mr. Card said. He declined to offer specifics about those pricing discounts.

There's also a chance Merrill Lynch could alter its approach if the fiduciary rule is ultimately amended in some form, depending on what occurs following a Labor Department regulatory review directed by President Donald J. Trump. A proposal to delay the rule beyond the current April 10 applicability date is currently being reviewed by the Office of Management and Budget.

Merrill would have "a tougher road to change" than some in a similar position such as Commonwealth, given their public relations push to promote advisory accounts as being in clients' best interests, Mr. Sarch said. However, he'd be "shocked" if they didn't alter their stance if there were big changes made to the regulation.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Does your pay stack up?

The Adviser Research Dashboard

Based on data collected through InvestmentNews' annual adviser research studies, this interactive, customizable tool allows you to view detailed data on compensation, staffing and financial performance practices from across the industry.

Learn more »

Upcoming Event

Apr 30

Conference

Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video

Events

Carson Group's Schaben: Making sense of millennials

Lazy, entitled, the trophy generation: These are stereotypes most often associated with millennials. But why are these myths and not realities. Carson Group's Aaron Schaben explains.

Video Spotlight

The Search for Income

Sponsored by PGIM Investments

Recommended Video

Path to growth

Latest news & opinion

T. Rowe Price steps up its game to serve financial advisers

The Baltimore-based mutual fund giant is more aggressively targeting financial advisers with a beefed-up wholesale crew and placement on custodial platforms.

The most important tax changes for 2018

The Internal Revenue Service issued inflation adjustments to more than 50 tax provisions for 2018.

Shift to Roth 401(k)s 'highly likely' part of tax reform: former Treasury official Mark Iwry

Mandated contributions to Roth accounts would likely only be partial, as opposed to having a full repeal of pre-tax accounts.

E*Trade acquiring custodian Trust Company of America

Discount broker buying second-tier custodian for $275 million.

Another thousand Dow points higher, and investors yawn

Market milestones keep falling like dominoes, with 51 records broken so far this year.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print