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Joining the league of other broker-dealers mulling changes to their businesses in light of the Department of Labor’s fiduciary rule, Merrill Lynch said Thursday that beginning in April, the company will cease offering new advised, or commission-based, brokerage IRA accounts.
Merrill plans to encourage its retirement clients to consult with their advisor about whether to move their brokerage IRA accounts to Merrill Lynch One, the BD’s Investment Advisory Program that offers a single, asset-based fee schedule, if they would like to continue to receive investment advice.
Merrill Lynch One, the firm said, helps Merrill to “improve the client experience and to provide increased transparency into fees, risks and outcomes,” adding that another alternative for investors is the brokerage’s self-directed and guided investing channels offered via Merrill Edge.
On Wednesday, BofA Merrill said that Merrill Edge, which was started about six years ago and now has over $130 billion in client assets, plans to introduce a robo-advice offering later this year.
Related: Broker-dealers on DOL fiduciary rule: Expect advisors to walk
“Our path ahead is to offer goals-based advice, supported by our Chief Investment Office, and delivered by highly-trained teams of professional advisors,” Merrill said in its statement.
Merrill also explained that “legacy retirement assets,” which are 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 our investment recommendations to hold or sell” after April 10, which is when the DOL’s first compliance date kicks in.
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This is not likely to be the last of company changes as agents, advisors and their employers prepare for the compliance demands of the new federal fiduciary standard. (Photo: iStock)
However, beginning on April 10, “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,” Merrill explained.
Merrill says that it will not use the Best Interest Contract exemption “to service or support ongoing IRA brokerage account activity.” However, “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, Merrill said.
Fred Reish, partner in Drinker Biddle & Reath’s employee benefits and executive compensation practice group, said there are several likely reasons Merrill decided to drop new advised brokerage accounts. “It is easier to comply with the new [DOL fiduciary] rules through level fee advisory services; if BICE isn’t used, the prospect of class-action lawsuits is diminished. As I understand it, they don’t currently accept small clients into brokerage accounts with individual advisors, and [Merrill] likely believes that larger clients are amenable to level fee accounts.” Further, Merrill “believes that their clients will be well served by these arrangements.”
Merrill Lynch is also gearing up to provide “extensive training” for its financial advisors on DOL’s rule, which will “further enable them to help retirement clients navigate the DOL rule, maximize its benefits and minimize any short-term disruption,” Merrill said.
Merrill advisors will also be reaching out to clients in the coming weeks, the brokerage firm said, to discuss the impact DOL’s rule may have on their retirement accounts and help them decide on the right solutions.
See also:
Wading through the BICE paperwork
Survey: advisors fear consequences of DOL fiduciary rule
A DOL fiduciary rule compliance checklist
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DOL fiduciary rule forces Merrill to drop commission IRAs
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