It's highly unlikely Merrill Lynch would reverse its position on scrapping IRA commissions if the Labor Department's fiduciary rule were to be repealed under Donald Trump's administration, according to industry-watchers.
Marketing plays a large role in this analysis, they say. As the first wirehouse to announce compliance plans for the regulation, which affects investment advice in retirement accounts, Merrill Lynch has heavily promoted its wholesale shift to advisory fees over brokerage commission as being in clients' best interests.
Merrill Lynch started a print, digital and social media campaign in early November titled “We're committed to your best interest. Not the status quo.” In it, the firm says it believes in having a “fair, transparent fee before we start any work,” and that it would not collect commissions for personal retirement accounts.
“We believe we are honoring the spirit of the new [fiduciary] rules — not looking for ways to get around them,” the ad says. “Since Charlie Merrill started this company, we have always been committed to our clients. Not the status quo.”
“I think they are probably trapped in a way the other firms are not,” said Danny Sarch, founder and owner of Leitner Sarch Consultants, a recruiting firm. “They've used this as a marketing strategy. For them to reverse course is probably more challenging than for other firms that have not been so public, à la Commonwealth.”
Since the U.S. presidential election two weeks ago, stakeholders have voiced a number of opinions on the fate of the fiduciary rule, with some saying it is safe from repeal and others sounding off on its likely demise, through a variety of strategies.
Executives at Commonwealth Financial Network, an independent broker-dealer that followed Merrill Lynch in announcing a shift away from commission retirement accounts come April, recently indicated they'd reverse that decision if the rule were ultimately killed.
In the meantime, the firm is moving ahead with its compliance schedule and previously announced business changes, according to a statement.
A Merrill Lynch spokesperson declined comment on the firm's course if the DOL fiduciary rule were to be repealed. People familiar with Merrill's compliance decisions say the firm is moving ahead with compliance in the meantime.
It's unlikely Merrill would follow Commonwealth's line of thinking, according to Mr. Sarch.
“They'd have a tougher time putting the fiduciary genie back in the bottle because they've been so public about this being the right thing for their customers,” Mr. Sarch said.
Commonwealth also has a fraction of the impact given Merrill's much larger adviser force and reach, he said.
ON THE MARGIN
Moving toward advisory-only business is the direction Merrill Lynch was headed as a firm anyway, Robert Cirrotti, managing director of investment and retirement solutions for Pershing, said. However, there are a number of actions Merrill could take to lessen the effects of the switch to advisory accounts “without creating perceived inconsistencies” with the overarching spirit of the rule, he added.
“There are things they could do on the margin that are more accommodating to advisers,” such as a less aggressive push from commission to advisory accounts, Mr. Cirrotti said.
Some speculated Merrill's compliance decision would push advisers to seek out broker-dealers that are going to continue to allow commission accounts under the regulation.
David Levine, principal at Groom Law Group, agreed, saying concepts from the regulation would likely remain but would be tweaked.
“I do think people may choose certain pieces and concepts,” Mr. Levine said, while stressing that this all pre-supposes the fiduciary rule is repealed, which isn't a given. “I think it will be a hybrid between business and legal compliance.”
Similarly, Jeffrey Lieberman, counsel in the executive compensation and benefits group at Skadden, Arps, Slate, Meagher & Flom, said companies could potentially make some “accommodations” for smaller accounts that don't trade very much.
“They might be able to find ways to continue somewhat what they've done before with small [commission] accounts, and say, 'Maybe we can give you a little more info than we thought we could [under the fiduciary rule],'” Mr. Lieberman said.
“In some ways we may have a more fragmented compliance world than we have now, because some people may go in one direction and others another direction," Mr. Levine said.