Merrill Lynch swells ranks of fiduciary 401(k) advisers by over 3,000

More than 22% of its total adviser workforce is now certified by the wirehouse to act as a fiduciary for retirement plans

Nov 8, 2017 @ 1:54 pm

By Greg Iacurci

Merrill Lynch Wealth Management is charging into the fiduciary fray with lightning speed.

Since March, when the wirehouse brokerage announced plans to transition its defined-contribution-plan business to a fiduciary model in response to the Labor Department's fiduciary rule, the number of its financial advisers allowed to service retirement plans as a fiduciary has swelled by more than 3,000.

Prior to this, the firm only had a few hundred advisers certified to work as 401(k) fiduciaries, representing a small sliver of its roughly 15,000 advisers. Now, more than 22% of its adviser force is certified — and executives foresee that portion getting much larger in the coming months.

"I think at this juncture, our goal is to designate every adviser that wants to get designated," Steve Ulian, head of institutional retirement benefit plan sales and relationship management at Bank of America Merrill Lynch, said.

The Department of Labor fiduciary rule has had a profound effect on the way broker-dealers conduct 401(k) business. The Obama-era regulation, which partially went into effect in June, turns several interactions with 401(k) plan sponsors and participants that were previously non-fiduciary in nature into fiduciary advice.

The rule exposed brokers who weren't specialized in the retirement-plan market, as well as their broker-dealers, to more risk as a result. To control the risk, firms have put some guardrails in place.

Merrill Lynch's answer is to have a fiduciary adviser working with any DC plan governed by the Employee Retirement Income Security Act of 1974, which includes 401(k)s, if the plan has less than $50 million in assets. (Above that asset threshold, the plan sponsor can decide if they would like a Merrill adviser to serve as a fiduciary.)

Merrill advisers must receive one of three internal designations to serve as a plan fiduciary: Retirement Accredited Financial Advisor (a new designation as of July), Retirement Benefit Consultant, or Defined Contribution Investment Consultant. The latter two have existed for several years.

Each comes with different qualifications for training and a minimum number of retirement-plan clients. A Retirement Benefit Consultant, for example, must work with at least four DC plans with an aggregate $30 million in assets and go through third-party designation programs (the C(k)P and CPFA programs, provided respectively by The Retirement Advisor University and National Association of Plan Advisors).

Retirement Accredited Financial Advisors, though, are only allowed to service plans with less than $10 million in assets. Part of their qualifications entail having at least three DC plans, receiving a nomination from their division management team, and having the CPFA designation.

Merrill Lynch had roughly 260 RBC advisers prior to its 401(k) fiduciary announcement; now, it has more than 800, and 500 more are still eligible. Further, there are now 2,500 RAFA advisers, and roughly 2,000 more are still eligible. It also swelled its DCIC adviser ranks by 15% to 90 total.

Mr. Ulian said the firm will continue its strategy of swelling its fiduciary ranks, even though some parts of the fiduciary rule yet to go into effect are likely to be delayed by 18 months, and may be watered down in the future. Some Merrill advisers seem to be sold on the firm's strategy.

"We think it's good for the advisers, the firm and the business," said Dominic Casanueva, a Merrill adviser from Sarasota, Fla., who advises on more than $2 billion in DC assets and who's been a designated fiduciary for several years. "We think this is the way the industry is going and what clients are looking for. People are looking for expertise … and transparency around fees."

However, some advisers feel Merrill is setting its minimum qualifications to be a fiduciary too low, especially for its new RAFA designation.

"They should hold themselves accountable to a higher level of standard," said Jason Chepenik, managing partner at Chepenik Financial, who has 81 DC-plan clients with more than $1 billion in assets, adding that an adviser can't develop expertise with only three plan clients. "Though I'm happy they've adopted the [fiduciary] standard, they can set the bar higher."

Aaron Pottichen, retirement services practice leader at CLS Partners, said Merrill's strategy may erode the competitive advantage of being a fiduciary if such services become commoditized.

"It basically results in more people that theoretically know more than the average adviser," he said.

"It doesn't help me, but it's good for the industry," Mr. Pottichen added. "I think it'd be good if other large wirehouses required the same thing."


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