Merrill Lynch outlines plans for its 401(k) fiduciary platform

Wirehouse is broadening the pool of advisers who can work with retirement plans as an investment fiduciary

Mar 15, 2017 @ 5:42 pm

By Greg Iacurci

Merrill Lynch Wealth Management outlined plans Wednesday to transition its defined-contribution-plan business over to a fiduciary model, coming several months after the firm announced similar plans for its retail retirement business and as the implementation deadline for the Department of Labor's fiduciary rule approaches.

Broadly, the wirehouse said advisers servicing DC plans of a certain size will, after a yet-to-be-determined date, be a fiduciary when providing advice or recommendations for a retirement plan's investment menu.

The firm's 14,000-plus advisers must have a special designation from the company or partner with advisers more specialized in servicing retirement plans to continue working with these types of clients. The firm is broadening the pool of advisers available to receive such a designation.

"This is really an extension of the fiduciary capability, offering it to all plans," said Steve Ulian, head of institutional retirement and benefit plan sales/relationship management at Merrill.

The approach differs significantly from the way many brokerage firms currently advise retirement plans, often in a non-fiduciary capacity.

Merrill and its counterparts have been announcing drastic changes to the way they conduct business with respect to retirement plans due to the DOL fiduciary rule, which raises investment advice standards in 401(k)s and other retirement accounts.

Morgan Stanley Wealth Management, for example, announced a partnership with the record keeper Ascensus last week in a product that aims to help advisers service small 401(k) plans in a fiduciary capacity when the rule kicks in.

The announcement also follows on Merrill's decision to disallow use of commissions in the vast majority of advised IRAs in response to the fiduciary regulation.

The DOL rule's implementation phase is set to begin April 10, but the Trump administration is currently trying to delay it, with amendments to the regulation or its rescission possible. Merrill Lynch signaled it will go ahead with its 401(k) business changes regardless of the outcome.


The firm has three record-keeping distribution channels — the proprietary Bank of America record-keeping platform (known as ML2), traditionally focused on mid- and large-sized plans; the Advisor Alliance program, a platform of 11 record-keeping partner firms typically used for small- to mid-sized clients; and "non-platform" record keepers, such as Fidelity Investments.

Going forward, Merrill advisers will have to service a DC plan with less than $50 million in assets as a 3(21) investment fiduciary. That's a co-fiduciary role under the Employee Retirement Income Security Act of 1974, whereby an adviser makes an investment recommendation and a plan sponsor ultimately chooses to implement the suggestion. A 3(21) service through Merrill advisers is presently available only through the non-platform record keepers, and on a limited basis through its proprietary record-keeping arm, but not through Advisor Alliance.

Now, qualified Merrill advisers can offer a 3(21) service across all three channels. They would do so for a level asset-based or hard-dollar fee, in a shift away from commissions and 12b-1 fees.

"Obviously, [Merrill] is broadening this program to embrace the fiduciary concept," said Denise Valentine, a senior wealth management analyst at Aite Group.

Advisers currently offering 3(21) services must have an internal designation as a Retirement Benefit Consultant. That's earned by having at least $100 million in DC plan assets or four DC clients on the ML2 or Advisor Alliance platform, as well as a certain level of required training. Merrill has about 267 Retirement Benefit Consultants today.

But the wirehouse is easing some of the qualification requirements for this designation. An adviser will need $30 million in plan assets or four DC clients, as well as requisite training, to qualify under the new system.

The firm is also introducing another designation, a Retirement Accredited Financial Advisor, earned with specific training and a minimum of three DC clients. There's no plan asset minimum.

A spokesperson was not able to give additional detail on any differentiation in service between the designations.

Advisers without these designations must partner with designated advisers to deliver fiduciary services to a DC plan. The partnership model is one that's been embraced by other wirehouses such as Morgan Stanley and independent broker-dealers such as LPL Financial.

"We still want all of the advisers here to participate in the DC business," Mr. Ulian said. "The way they're going to do that is by partnering with a designated adviser or bring expertise to the relationships they may have."


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