Major Move by Merrill Lynch to Comply with Fiduciary Rule

By Mack Bekeza

In order to comply with the upcoming Fiduciary Rule, Merrill Lynch decided to discontinue offering commission based IRA accounts to investors starting April 10th of 2017. Specifically, they want to remove a major conflict of interest between them and their clients by only offering fee-based advisory, robo-advisory, and self-directed services for IRA accounts. Merrill Lynch’s decision is expected to have a major ripple effect for not only their clients, but for their advisers and their respective competitors.

So, how does Merrill Lynch’s decision affect their advisers and their competitors?

1. As of April 10th of 2017, the firm’s 14,000 plus advisers will no longer be able to open new commission based IRA accounts, which is a notable source of their compensation. On top of that, advisors will now have to further prove their value to their clients when their primary form of compensation will be under a fee based model.
2. Since Merrill Lynch is one the first major wirehouse firms to make this move, it is expected that other wirehouse firms will also follow suit in order to remain competitive in the upcoming Fiduciary focused marketplace.
3. Merrill Lynch as well as other wirehouse firms will more than likely face other regulatory issues such as having fee-based variable compensation, which will be prohibited under the Fiduciary Rule.
4. This might lead to certain broker dealers to no longer service IRA accounts due to additional costs of complying.

Although we believe this is an excellent move by Merrill Lynch, we believe that wirehouse firms such as Merrill will still face regulatory issues as they may have to forgo recommending certain investments to clients as well as having to develop a truly uniform method of compensation from their IRA accounts.

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