Merrill’s fiduciary plan: Commission-based IRAs will be phased out

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Merrill Lynch will stop offering commission-based retirement accounts among other changes as part of its plans for complying with the Department of Labor's fiduciary rule, making it the first wirehouse to explain its strategy in detail.

Merrill, which is embracing the rule as a positive development for clients, revealed its strategy to the firm's more than 14,000 advisers on Thursday.

The move makes it the first wealth management firm to say that it would not use the rule's best interest contract exemption, which permits firms to continue to offer commission-based accounts. Critics have charged that the liability risk associated with the exemption is too high.

Merrill clients will be able to receive retirement-related advice through the firm’s fee-based Investment Advisory Program. Clients wanting a brokerage option will be still able to make use of the company's other investing options, including Merrill Edge, a self-directed brokerage service, as well as a robo adviser service due to be rolled out in early 2017. The company announced the new digital offering earlier this week.

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Although Merrill has gone first in making the announcement, it may not necessarily be a trend setter for the industry.

"If a firm doesn't have something like Merrill Edge or an adviser base like that of Merrill's, then they might come to a different conclusion," says Alois Pirker, research director at Aite Group, a Boston-based research firm.

For the wirehouse, the strategy makes sense as it fits with their existing focus on holistic wealth management and wealthier clients, Pirker says. "I think for them this is exactly what was expected. It emphasizes the high-end adviser proposition and focuses on clients that want that."

Merrill Lynch, unlike some other large brokerage firms, has been more welcoming of the Labor Department's fiduciary rule.

"We are confident the rule will serve our clients’ best interests as it raises professional standards across the wealth management industry," the company said in a statement regarding its implementation plan.

Other firms have revealed some details of their plans for the fiduciary rule. In August, Edward Jones said it would make use of the best interest contract exemption to offer a commission-based retirement account, but without mutual funds or ETFs. The firm cited concerns about variations in pricing.

Firms have also been ramping up their efforts to comply with the rule. RBC recently said it was accelerating a new financial planning software launch, and had assembled a team of more than 100 professionals, both insiders and outside consultants, to ready the firm for the rule.

For its part, Merrill's moves are significant not only for being first but also because of the firm's size. The wirehouse oversees approximately $2 trillion in client balances, according to Merrill.

The New York-based firm says it is well prepared for the new regulation, citing previous investments that it has made in platform, technology and product offerings as well as its long-time emphasis on goals-based wealth management.

Still, like its rivals, the wirehouse says it will offer new companywide training for its advisers as well as expand the product offerings in its investment advisory program and through Merrill Edge.

Merrill will provide clients with a fee description disclosures and guides to its services in order to provide greater transparency, the firm says. Clients who have existing IRA brokerage accounts with Merrill Lynch can keep them under a grandfather clause in the rule, but cannot add new assets to the accounts. They will also not have access to Merrill Lynch's investment advice about new purchases, according to the firm.

On the same day that Merrill detailed its fiduciary implementation plan, the firm also announced that John Thiel, head of Merrill Lynch Wealth Management, would step down on Jan. 1.

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Fiduciary Rule Compliance IRAs Retirement planning Merrill Lynch DoL