Bank of America Doubles Down on Commission Ban at Brokerage Units
Merrill Lynch brokers trying to do customers a solid by suggesting they move retirement accounts to discount brokerage colleagues at Merrill Edge will not be able to do so after November 11, according to documents sent to Edge managers and reviewed by k-tcc.
As part of Bank of America’s decision to avoid potential litigation and compliance problems arising from the Department of Labor’s new fiduciary rule, it is banning commission-based retirement accounts not only at its full-service Merrill Lynch Wealth Management network and its more than 14,000 brokers but also at its bank branch-based Merrill Edge business, which employs almost 2,200 “financial service associates” (FSAs).
“Under the new rule, your relationship with your clients might change,” the bank wrote in a talking-points memo to Edge managers subtitled Key Message for Associates. “The Merrill Edge Advisory Center brokerage offering will be discontinued at the end of 2016 (this includes IRAs and retail accounts).”
A spokeswoman for Edge did not respond to requests for comment on how many advised accounts and assets reside at the unit, and a Merrill Global Wealth Management spokeswoman declined to comment on how referral bonuses and other compensation might be affected by the new policy.
In a “New Business Model Stop Sell” memo, the bank told Edge employees that it is shuttering the unit’s “advised brokerage” platform to new accounts as of January 1, 2017. Clients with existing commission retirement accounts will have “limited options available” and will not be able to add to their positions or open new advisory accounts as of April 10, 2017, when the DOL’s conflict-of-interest rule goes into effect, the memo said.
Just as Merrill Lynch wealth brokers have been told to try to move retirement account customers to its fee-based Merrill One platform that generally charges more than 1% of assets annually as an advisory fee, Edge FSAs will try to transfer customers who want advice to a managed account called Merrill Edge Select Portfolios that . (Merrill sources said brokers will be able to discount fees to induce commission-paying clients to stay with the firm, and some brokers had planned suggesting that clients lower their asset-based charge by transferring retirement account assets to Edge FSAs.)
Edge customers also can be directed to the brokerage’s soon-to-be-launched Merrill Edge Guided Investing “robo” platform that charges a .45% management fee and has a $5,000 minimum or to Edge’s self-directed platform that takes customers out of an FSA’s ambit.
“For clients who no longer want any of these three options, they can move their retirement assets to another provider,” the stop-sell memo says. Customers will be notified of the demise of the advised brokerage individual retirement account option in their December 2016 statements that are mailed in early January 2017, it says.
As part of the new policy, Edge will stop accepting new qualified annuities as of January 1, 2017, because of the apparent high differentiated commissions associated with the product and also stop selling its BlackRock FDP (Funds Diversified Portfolio). While existing qualified annuities will be grandfathered, customers invested in the FDP products will lose existing account rebalancing features effective “on or around March 31, 2017,” the memo says.
As previously reported, Bank of America has diverged from rivals such as Morgan Stanley by prohibiting brokers from using the DOL rule’s “best-interest contract” exemption that permits commission-based retirement accounts and allows customers to participate in class-action lawsuits if they believe brokers breach fiduciary obligations.
Bank of America’s decision to unilaterally ban commission retirement accounts at Merrill and Edge along with all retail advised brokerage accounts at Edge will come at some cost as clients and some brokers leave and as the bank gives up some platform fees from product manufacturers.
“We have the opportunity to set ourselves apart from our peers,” the Key Message for Associates memo to Edge managers says. “We will show courage and conviction by doing what’s right for all of our clients, by being leaders in our role as fiduciaries, and as a result, we will rebuild trust in the industry.”