Merrill, in Reversal, to Allow Limited Commission-Based Retirement Accounts
(Updated to add details throughout, clarifies in second paragraph that new “limited” account will initially be for bank deposits and cash only, not for bank CDs.)
Merrill Lynch told its 14,500 brokers on Thursday that it will allow customers to open limited-purpose individual retirement accounts that charge commissions on a small number of investments, slightly modifying its earlier outright ban on commissions in IRAs to conform with the Department of Labor’s fiduciary rule.
As of June 12, three days after the rule is scheduled to go into effect, the new account can hold cash and bank deposits, Merrill wealth management head Andy Sieg said in a conference call.
Merrill is working on allowing purchases of brokered certificates of deposits in the accounts and will allow clients with net worths of $50 million and higher to buy hedge funds and private equity investments in the account. Customers also can transfer a single concentrated equity position to the limited-purpose account after June 9 to be held or sold, but not to add new positions, a concession to brokers who service corporate executives and business owners whose net worth is often weighted toward single investments.
Merrill and its Bank of America parent remain more conservative than many competitors regarding retirement-account investments. Most rivals are permitting brokers to sign best-interest contracts with clients permitting commission-based IRA accounts but that expose brokers and the firm to private-action lawsuits if brokers violate the best-interest fiduciary standard.
Merrill brokers, who will utilize the contract for the limited commission business, will receive standard payout and clients will pay standard commissions in the limited-purpose IRA accounts (with existing discount sharing policies in place), Sieg said.
Sieg emphasized that Merrill’s preferred course remains servicing customers through fee-based advisory accounts, noting that by the end of May it will be making annuities available in such accounts and will later add new-issue CDS and more complex investments such as market-linked investments, said people who heard his remarks. Merrill will also make the accounts more flexible by permitting rebates to customers on mutual fund share-class exchanges and by removing penalties on brokers for discounting fees in the accounts.
Responding to some brokers who complained that customers were reluctant to give up trading in commission-based IRAs, Sieg repeated earlier Merrill suggestions that brokers transfer some clients to Bank of America’s discount brokerage arm, Merrill Edge, or to Edge’s low-priced “robo” Guided Investing fee program.
Merrill is also creating a “temporary restricted account” to house new assets that are not immediately allocated to a suitable investment platform and can hold cash and securities for up to 180 days. The firm will not charge commissions on such accounts nor pay advisors for transactions in them. Merrill also has postponed its “fee leveling” requirement until January 1, 2018, when the second stage of the DOL fiduciary rule is expected to become effective. The policy will require the same fee to be charged for all retirement accounts held by a client.
Asked whether Merrill would enforce the retirement-account restrictions if the Trump administration under Labor Secretary Alexander Acosta further delays or eliminates the fiduciary rule’s implementation, Sieg said the political situation is too delicate and changeable for him to comment, said brokers who listened to the conference call.
The rule that was passed under the Obama administration was scheduled to become effective last month but was delayed until June under a review ordered by President Trump.