News reports emerged this week that Merrill Lynch, known as one of the four big wirehouse broker/dealers in the U.S., will no longer sell advised, commission-based individual retirement accounts (IRAs) starting in 2017.
The news is probably less surprising than it is confirmation for many advisers. Trusted Employee Retirement Income Security Act (ERISA) attorneys and sales executives have been saying for months, if not years, that the new fiduciary rule is sure to drive more level-fee business for financial advisers and their service provider partners.
The firm indicates that clients who traditionally would have been served by the commissions-based IRA brokerage platform will instead be directed towards other segments of the Merrill Lynch business, including the robo-advice platform. The Merrill Lynch One platform, for example, will continue to offer a single, asset-based fee schedule, “helping [the firm] to improve the client experience and to provide increased transparency into fees, risks and outcomes. We also offer robust self-directed and guided investing channels through our Merrill Edge platform, providing clients with additional flexibility and choice.”
The firm’s explanation continues: “We have determined that for most of our Merrill Lynch clients, the best way for us to deliver retirement-related investment advice that meets the fiduciary standard is through our Investment Advisory Program. In addition, we are seeing clients increasingly moving more of their assets (e.g. taxable, tax-deferred) into investment advisory as well, and we expect that trend to continue.”
Through Merrill Lynch’s Investment Advisory Program, retirement clients have access to “a full suite of investment products and services, personalized strategies, automatic rebalancing of their asset allocation, and ongoing investment advice from a dedicated financial adviser.” Expenses are assessed as an asset-based fee determined by the amount of assets, and the fee doesn’t vary depending on investment recommendations.
Legacy retirement assets, those in a Merrill Lynch IRA brokerage account before April 10, 2017, can remain in that account, and will continue to have the benefit of investment recommendations to hold or sell after April 10, 2017; however, under the new DOL rule, beginning April 10, 2017, retirement clients won’t be able to add to legacy assets, or have the benefit of our investment advice about new purchases in their IRA brokerage accounts. Retirement brokerage account clients who prefer not to receive advice from a Merrill Lynch Wealth Management adviser will have a choice to use a range of investment options, from self-directed brokerage to online guided investing, through Merrill Edge.
Merrill Lynch further explains it will not use the Best-Interest Contract (BIC) exemption to service or support ongoing IRA brokerage account activity. “When appropriate, we will use this exemption to recommend enrollments in our Investment Advisory Program from a retirement client’s IRA brokerage accounts, or rollovers from ERISA 401(k) plans. After an account is enrolled in our Investment Advisory Program, or a Merrill Edge self-directed or guided investment advisory account, there is no longer a need to use the BIC exemption.”
Asked about any plans for modifications to the institutional retirement wing of the business, the firm tells PLANADVISER it will continue to serve plan sponsor clients “with the highest standards in compliance with the rule, which will require some operating and product modifications.”
However, the firm says decisions are still being made on that front, so it will apparently still be some time before the full impact of the rule on Merrill Lynch’s sales and services in the retirement arena are made clear. One other interesting aspect of the news to note is that Merrill Lynch advisers traditionally did not embrace fiduciary roles for IRA clients—but now they are the first of the big wirehouse brokerages to formally lay out an approach for serving IRAs in a flat-fee future.
A similar announcement was made in recent weeks by the advisory firm Edward Jones. That company says it will look to grandfather IRA relationships acquired before April 2017, while also instituting some fundamental changes to process and product to comply with the new fiduciary rule for ongoing and new relationships.
Editor’s note: We will be following this announcement and the wider industry’s response throughout the day and into next week on www.planadviser.com. Stay tuned!