In a note to employees Thursday, Head of Merrill Lynch Wealth Management Andy Sieg explained the firm's recent change of plans in regards to commission-based investments in retirement accounts, and laid out the brokerage’s efforts to comply with the Department of Labor’s retirement-savings rule while still offering what the firm said was a low-cost option for smaller investors who trade infrequently.
Sieg reiterated in the note that Merrill Lynch is operating under the assumption that the retirement-savings rule will go into effect June 9. President Donald Trump issued a memorandum February that delayed the start of the rule for 60-days and directed the DOL to re-examine it.
Shortly after the DOL rule was passed, the Bank of America-owned brokerage announced it would do away with all commission-based retirement investment accounts. The firm appeared to walk back that decision recently, leading to speculation by some that with the potential derailment of the rule by the incoming Trump administration, Merrill Lynch was looking to keep its broker's compensation options open. But according to the firm, they found that some clients who make few transactions, and don’t have complicated financial plans, might in fact be better off paying up-front commissions on an investment fund rather than an annual percentage of AUM.
“We have analyzed the limited situations where recommending a fee-based arrangement might not be in a client’s best interest, and have considered alternatives to [Investment Advisory Platform] for these situations,” Sieg said in the note.
Until Thursday’s note, details of Merrill Lynch’s plan to accommodate those clients hadn’t been public.
The brokerage announced a number of other changes coming on the heels of June 9, according to a person familiar with those changes.
The brokerage is adding products to its Investment Advisory Platform (IAP), including advisory share class annuities, hedge funds, new-issue CDs and market-linked investments.
A limited-purpose brokerage IRA will also be made available June 12 for cash and bank deposits, but the intent is to expand that to money funds, CDs and concentrated stock positions, such as those frequently held by executives. In those situations, the brokerage will use the DOL’s “best interest contract” exemption which allows advisors to receive commission-based compensation for those accounts.
Ultra high net worth clients, defined as those with $50 million or more, will also have the ability to invest with hedge funds and private equity through Merrill Lynch under the BIC exemption.
The bank is also creating “transition” accounts for new client assets coming to Merrill Lynch until a suitable new account is chosen. Those will be non-commission accounts.
Securities purchased or held in Merrill Lynch brokerage retirement accounts before June 9 can remain there, but new purchases cannot be made after that date.