Merrill Lynch will allow IRA commissions in some circumstances under DOL fiduciary rule

Beginning in June, Merrill advisers will be able to use "limited purpose brokerage IRAs" for certain products and transactions, and the firm will also make more products available over its advisory platform

May 11, 2017 @ 3:02 pm

By Greg Iacurci

Merrill Lynch will allow advisers to receive commissions from some transactions in individual retirement accounts under the Department of Labor's fiduciary rule, the company announced Thursday, backing off a hardline position against commissions that the firm's executives laid out last year.

Merrill Lynch had said in October it wouldn't allow new, advised commission-based IRAs following the implementation of the fiduciary rule. Rather, the wirehouse said advisers could only service retirement accounts in a fee-based, advisory capacity.

"We have analyzed the limited situations where recommending a fee-based arrangement might not be in a client's best interest and have considered alternatives to IAP [Investment Advisory Program] for these situations," Andy Sieg, the head of Merrill Lynch Wealth Management, said Thursday in a note to advisers. "Today, we are announcing where we can offer more flexibility in a manner consistent with a higher standard of care."

The announcement to the firm's 14,000-plus advisers follows signals from Mr. Sieg in March that the brokerage might back off its wholesale scrapping of commissions in retirement accounts due to the DOL regulation.

The fiduciary rule, which raises investment-advice standards in retirement accounts, makes it riskier for firms to provide advice in retirement accounts such as IRAs and 401(k)s on a commission, rather than fee, basis.

Beginning June 12, Merrill advisers will be able to use "limited purpose brokerage IRAs." The account will initially be for cash and bank deposits, but Merrill intends to expand its availability to a "limited product set" including money market funds, brokered certificates of deposit, and employer rollovers or transfers of concentrated stock positions, according to a source familiar with the matter.

Ultra-high-net-worth clients with at least $50 million in assets will also be able to buy hedge funds and private equity in these limited purpose brokerage IRAs, the source said.

On top of adding the limited purpose IRA, Merrill is also adding new products to its advisory platform, which charges clients a level fee for advice.

Those products include advisory share class annuities (also known as I-share or fee-based annuities), which will be available by the end of May. Work is also "under way" to offer "hedge funds, new-issue CDs and market-linked investments," according to a source familiar with the plans.

For the newly allowed brokerage transactions, Merrill will use the best-interest contract exemption portion of the fiduciary rule, which allows advisers to receive commission payments for transactions as long as certain conditions are met. One of those conditions is a contract opening up firms to class-action litigation from investors.

Most of Merrill's brokerage competitors have said they would be allowing commissions, and therefore BICE, for retirement business. The full conditions of the BICE, such as the contract, aren't set to come into force until the start of 2018.

Using the BICE "will carry some additional requirements and responsibilities for advisers, to ensure that they … can demonstrate compliance with the BIC requirements and show that they have acted in the client's best interest," the source said.

Securities bought in brokerage IRAs prior to June 9, the implementation date of the fiduciary rule, can remain in the accounts following this date. However, clients can't make additional purchases in the accounts.

Mr. Sieg said in his note that the firm is "operating under the assumption" that the June 9 date will hold, but the Trump administration is currently seeking a delay. It was already delayed once, from April 10.


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