ANALYSIS: Merrill’s Sieg Wavers on Retirement Account Policy
Merrill Lynch has always considered itself a leader of the wealth management industry, and is upholding its reputation when it comes to confusion over retirement account policies.
On Thursday afternoon, Merrill’s wealth management head Andy Sieg told brokers that despite likely delays and possible modifications in the DOL conflict-of-interest rule under the Trump administration, the firm’s ban on selling mutual funds, non-tradable REITs, life insurance and a few other specialized products for retirement accounts remains in effect.
However, he also said that Merrill is reviewing the absoluteness of its ban on commission-based retirement accounts once the DOL Rule takes effect.
Merrill last October put a stake in the ground by saying it would limit customers to fee-based retirement accounts (what it calls its Investment Advisory Program, or IAP) rather than permit use of a DOL Rule exemption that could open violators to class-action lawsuits.
“As we’ve worked over the last year to meet the requirements of the Conflict of Interest Rule, we’ve recognized that there may be limited situations in which a fee-based arrangement would not be in a client’s best interests,” Sieg, who took the mantle of the wealth management unit in January, wrote in a memo following a call to Merrill’s 14,600 brokers.
“We are reviewing those limited circumstances to consider potential alternatives to IAP for some clients in a manner consistent with a higher standard of care.”
The takeaway is that brokers are still unsure of how to proceed, but, as the repeat use of the word limited indicates, are being guided to go with the fee-based model preferred by Bank of America, Merrill’s parent. The bank considers fees legally safer than commissions, and fee-based accounts have proven more lucrative and stable industry-wide than commission accounts.
“No decisions have been made” about whether Merrill will permit commission-based accounts, but executives are using the likely 60-day delay of the fiduciary rule’s implementation date to review its options, said a person familiar with the process.
Sieg is viewed as being more sympathetic to brokers’ general wish for flexibility in account offerings than was John Thiel, his predecessor, but must still negotiate carefully around the dictates of Bank of America Chief Executive Brian Moynihan, according to several brokers and former executives.
Indeed, Sieg made it clear that the fiduciary fee-based road will continue to be the preferred one.
“[O]ur primary vehicle for delivering ongoing advice and service for our clients’ retirement accounts will continue to be the Investment Advisory Program (IAP),” he wrote in the memo. “IAP allows us to manage conflicts of interest when advising our clients, gives our clients clarity and transparency around the fees we charge, and facilitates a disciplined investment process.”
Merrill, like other firms, also is likely exploring alternative approaches to discourage commissions in both retirement and taxable accounts. One idea that lawyers versed in retirement account policies are kicking around would be to impose a fee on clients seeking exceptions from advisory accounts but that would not be compensable to brokers.
A Merrill spokeswoman said Sieg was not available to elaborate on what Merrill is considering.
For the time being, however, he made clear on Thursday that the fiduciary standard is still guiding policies. Merrill will launch a new national campaign later this month or in early April that focuses on putting client interest first, Sieg said on the call, but did not specify how it may modify ads Merrill ran in the fall that flaunted its commission ban as proof of its commitment to break from the “status quo” by putting customer interests first.
And in his memo he said bans on products with variable commissions that can sway brokers’ recommendations to clients will stay in place.
“We’ve made substantial progress in aligning our product offerings with our clients’ best interest,” he wrote. “As such, product restrictions currently effective for retirement brokerage accounts will remain in place, including restrictions on mutual funds.”