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Merrill Lynch Copyright Mario Tama, Getty Images

Merrill Lynch Reconsiders Commissions for Retirement Accounts in Wake of Fiduciary Rule Defeat

The brokerage told advisors on Friday it’s taking about 60 days to consider changes, including whether to allow commission-based IRAs again.

In wake of the U.S. courts axing the Department of Labor’s retirement savings rule, Merrill Lynch told its field of more than 14,000 financial advisors on Friday that the brokerage is reevaluating its policies and procedures, especially those related to retirement accounts.

“Now that the regulatory environment has shifted, we’re taking a look at our policies, especially as they might affect policies and procedures for Individual Retirement Accounts, to ensure we keep our clients’ best interests front and center. Our core strategy, consistent with our principles, remains unchanged,” the company said in a statement about the nature of the call.

Shortly after the DOL rule was passed, Merrill Lynch decided to ban commission-based IRAs. It was the lone wirehouse brokerage to make such an announcement while others took a wait-and-see approach.

Even after President Donald Trump issued a memorandum in February of 2017 that delayed the start of the rule for 60 days and directed the DOL to reexamine it, Merrill Lynch made plans under the assumption that the DOL’s so-called “fiduciary rule” would go into effect last summer. In preparation, the brokerage rolled out a limited-purpose, commission-based retirement account on its advisory platform for investors who don’t need ongoing, annual management.

The Securities and Exchange Commission is currently amid its own rulemaking process for financial advisors, but now that the DOL’s has been defeated, it’s possible Merrill Lynch could retract its ban on commission-based IRAs entirely. 

Whether charging a commission for retirements accounts is a good or bad thing for investors depends on who you ask.

“I think this decision is positive,” said Louis Diamond, executive vice president and senior consultant at Diamond Consultants, a financial advisor recruiting firm. “Any time you can give clients more choice—and advisors, if they are operating ethically, to service clients the best way they should be served—that’s a good thing.”

Merrill Lynch’s ban on commission-based retirement accounts was significant, but to backpedal on that decision was less so. Many advisors who didn’t want to transition clients into fee-based accounts probably already left the brokerage, according to Diamond.

He also pointed out that the DOL’s retirement savings rule was a convenient means to get advisors to transition client assets that were commission-based to fee-based management. The revenue from fee-based management is more predictable and has proven to be a more lucrative form of revenue for advisors.

One prominent executive was critical of Merrill Lynch for contemplating a reversal of its compensation policies on some retirement accounts, arguing that acting as anything other than a fiduciary to a client could harm investors.

“It’s entirely predictable. It’s business as usual on Wall Street,” Elliot Weissbluth, the founder and CEO of HighTower, an independent registered investment advisor that must legally act as a fiduciary to clients, said about Merrill Lynch contemplating the changes. 

Weissbluth, who designed HighTower to be an RIA destination for former wirehouse advisors, suggested the brokerage should take “the high ground” and stick to its fee-based compensation for retirement accounts. He said no one should be surprised by the decision to rethink the policies.

On fee-based accounts earnings more than commission-based accounts, Weissbluth said, there must be economic incentives behind the decision. “Would Merrill ever do anything that cost them margin rather than increase or expand additional margins?”

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