Merrill Reduces Retirement Account Sticker Shock
(Updates with additional details in second and third paragraphs and comment from Commonwealth.)
Following widespread dismay over its ban on commission-based retirement accounts in the face of the Labor Department’s new fiduciary rule, Bank of America Merrill Lynch is telling brokers and customers that the decision will not affect their wallets.
Existing customers who move from commission-based brokerage accounts to fee-based advisory accounts will not pay more in the new account, several brokers and an official at the firm said. To accomplish this, Merrill will not penalize brokers for offering discounts below the standard Merrill One managed account advisory fee of 1.15% and is eliminating the minimum monthly fee requirement of $125, they said.
There is no floor on the discount, and the fee that is negotiated during the transition will remain in effect until a client and broker agree to a new arrangement, said a person with knowledge of the policy. The “discount-sharing” penalty waiver does not apply to newly established retirement accounts or to standard “non-ERISA qualified” accounts.
Merrill has been steering a lonely course in deciding to ban transactional retirement accounts in order to comply with the DOL rule’s rigid compliance requirements. Most rivals say they are promoting “client choice” in maintaining the status quo, despite having to document that brokers are working in their clients’ best interests when selling commission-paying products and risking lawsuits sanctioned by the rule.
The rule, which also limits firms’ recruiting strategies, is scheduled to become effective on April 10, 2017, unless the Trump administration rolls back the effective date or works with Congress to repeal it.
Morgan Stanley has told its brokers that its flexibility shows faith in brokers’ ability to determine what is in their customers’ best interests. Merrill, for its part, has launched an ad campaign that says it is committed to its customers’ “best interest, not the status quo.”
When Merrill announced its decision to take a hard line on complying with the new fiduciary rule, it told its 14,500 brokers that it would develop processes to ease the process of converting customers to advisory accounts while imposing new internal education requirements on retirement investing.
It also is permitting customers to keep their current commission-based retirement accounts, but is not allowing new purchases, meaning broker compensation has ground to a halt on the accounts. Under various bonus plans, Merrill brokers can receive referral credits if customers transfer to self-directed or robo-advised accounts at Bank of America’s Merrill Edge unit.
Like Merrill, JPMorgan Chase’s private bank and brokerage units and independent broker-dealer Commonwealth Financial have also decided to ban transactional retirement accounts. A spokeswoman for JPMorgan declined to comment on its plans. A spokeswoman at Commonwealth said it was too early to say what its approach would be.
While some Merrill brokers initially expressed concern about the new policy, they are applauding the decision to lift the discount-sharing penalty and appear to be making peace with the commission ban.
“[It’s] hard to find a reason why it’s bad for the honest advisor,” a Merrill broker in New Jersey wrote in an email. “[I] can’t see how the firm is doing wrong.”