Merrill Lowers the Ceiling on Advisory Fees
(Updates with quote from a former Merrill regional director in sixth paragraph, and corrects number of Merrill FAs in fifth paragraph.)
Merrill Lynch has reduced the ceiling on fees its brokers can charge on advisory accounts with less than $1 million in assets to 2.2% from 2.7%, below the maximum allowed at rivals Morgan Stanley and UBS Financial Services.
The 18.5% decline in the fee maximum was outlined to clients in account statements sent last month, a spokesman confirmed. Ceilings on accounts between $1 million and $4.99 million remain at 2.2% of assets, and at 2.0% on accounts of $5 million or higher.
The changes, reported earlier by The Wall Street Journal, are notable primarily for their publicity value since consultants and brokers at large firms say they rarely charge near the maximum, brokers and consultants said. The average advisory fee on a managed account in the brokerage industry ranges from 1.08% to 1.33%, according to Boston-based research firm Cerulli Associates.
Merrill’s managed account platform, Merrill One, generally carries a 1.15% fee, and the firm has permitted additional discounting to help brokers comply with its new plan to end commission-based retirement accounts. Merrill for several years has not paid brokers on household accounts with less than $250,000 of assets.
Given the size of Merrill’s salesforce of some 14,600 brokers, some will inevitably be hurt by the new policy and may feel forced to abandon some clients.
“This is another example of big firms not recognizing the value advisors and their teams can provide to clients of all asset levels,” said Chris Dupuy, a former Merrill regional director who now runs Focus Financial Partners’ independent broker business. “Many advisors priced their services at the old ceiling level and clients willingly paid.”
The maximum-fee drop coincides with Merrill’s efforts to move clients who do not want to give up commission-based accounts to Merrill Edge, the discount brokerage housed within Bank of America’s retail banking arm. The fee for Edge accounts dropped to 0.85% of assets from 1.0% as of January 6, according to regulatory documents filed with the Securities and Exchange Commission.
For the deepest discounts, Bank of America also this year launched a robo platform that charges 0.45% of assets on accounts with as little as $5,000 within the Edge unit.
For full-service brokers, maximum fees still range at 2% or higher at most firms. UBS has a ceiling of 2.8% on its core managed account program, while Morgan Stanley’s maximum fee is 2.5%, according to regulatory filings on their managed accounts programs.
In another effort to persuade customers of its fee-friendlier bias, Merrill has amended its client account statements this year to highlight monthly fees assessed in percentage and dollars-and-cents terms, a move that has not been copied to date by its rivals. The statements do not, however, highlight monthly commission payments.