Merrill Lynch recently told its Thundering Herd that it plans to explore "options" for at least some clients who might benefit from commissions in retirement accounts, a shift from its earlier fee-only approach to the Department of Labor's fiduciary rule. Analysts say this step represents a sea change in the approach it outlined last October.
"Regardless of the ultimate path that [Bank of America Merrill Lynch] chooses to take, Pandora's box has been opened, and the fee discussion is now front and center for clients, so whether or not the fiduciary rule is implemented in its current state may be a moot point," according to Brian Kleinhanzl and Michael Brown, CFA, of Keefe, Bruyette & Woods.
The Labor rule is expected to be delayed by 60 days; a 15-day comment period regarding plans to move the rule's first compliance date from April 10 to June 9 ended on March 17.
A recent J.D. Power survey finds that a delay and even a weakening of the standard would suit most clients just fine. Almost 60% of full-service investors paying commissions say they "probably will not" (40%) or "definitely will not" (19%) stay with their current firm if they must move to fee-based retirement accounts.
In fact, the group's February poll finds that a quarter of high-net-worth investors "definitely would not" switch to a fee-based account if it had a 1% fee. More than half, or 52%, of investors with $1 million or more in investable assets "definitely would not" move to a fee-based account that charges 2%.
Upsides of Fee-Only Approach
The KBW analysts said there are other advantages and some disadvantages to a shift in Merrill's previous fee-only approach. Allowing some clients to use the best interest contract (or BIC) exemption could "mitigate financial advisor attrition," they point out, since many rival firms — including Morgan Stanley and Wells Fargo Advisors — are poised to give their clients the option of using fee-based or commission-based retirement accounts.
Just in the first half of March, for instance, Raymond James, Janney Montgomery Scott and others have recruited advisors from Merrill Lynch. Raymond James, for example, said it added advisors David Lum and Michael Piazza to its employee channel in Stuart, Florida, with about $220 million in client assets and some $1.7 million in yearly fees and commissions.
Lum began his financial services career in 1981 at E.F. Hutton. He joined Prudential Securities in 1988 and became an advisor, moving to Merrill Lynch in 1999. Piazza cut his teeth as an intern with Merrill Lynch in 2010; during his off-seasons, he was a professional baseball player with the Los Angeles Angels and Colorado Rockies (not to be confused with baseball Hall of Famer Mike Piazza, a distant relative). He became a full-time financial advisor in 2015.
The Trump rally has been good to Raymond James Financial, which is now part of the S&P 500 index, thanks to the fact that its market capitalization has topped $10 billion. "We are honored to be included with this prestigious group of companies," said Chairman and CEO Paul Reilly in a statement.
HighTower Advisors says a Merrill Lynch team has gone independent and joined it as a partner: Ewing/Cona Wealth Management in Marlton, New Jersey, is run by Jim Ewing and Michael Cona, who have about $200 million in client assets. This is the fourth team to move to HighTower in 2017.
"Financial advisor teams like Ewing/Cona Wealth Management come to HighTower to accelerate the growth of their businesses among a community of like-minded peers in a fiduciary environment," said HighTower CEO Elliot Weissbluth in a statement. "The HighTower culture, brand and platform reflect our signature 'by-advisors-for-advisors' approach."
Ewing has about 18 years of industry experience and served as a wealth management advisor at Merrill Lynch for nearly a decade, after working as a registered rep for A.G. Edwards and two other firms. Cona oversees the financial planning process for Ewing/Cona Wealth Management; he was with Susquehanna Capital from 2000 to 2005, before moving to Merrill.
Loss of Operational Benefits
On the other hand, Merrill's decision to not move all clients to fee-based accounts "removes the operational benefits from opting not to use the BIC (i.e., compliance documentation)," Kleinhanzl and Brown pointed out, referring to best interest contracts. Plus, the move to a more flexible approach means Bank of America may be "more exposed to legal fallout should the company experience breaches in the BIC."
For clients, the analysts stated, the shift seems to be a net positive. "The company's self-directed brokerage platform, Merrill Edge, was the only option for those who wanted to maintain a commission-based retirement account with BAC," they explained. While self-directed brokerage accounts are good options for many clients, they are not "the ideal replacement for all clients, in our view," the analysts said.
Overall, more changes at Merrill are on the horizon. "Given the uncertainty around the fate of the fiduciary rule, we would not be surprised if the company decided to give itself more optionality to deal with the final outcome," they stated.
Merrill Walks Back Fee-only Plan
In discussing its latest views on the DOL matter, the wirehouse's wealth management chief, Andy Sieg, said that despite the "uncertainty in Washington," Merrill Lynch is "steadfast in its commitment to provide investment advice in our clients' best interests, particularly with respect to their retirement accounts."
