The death of the fiduciary rule is beginning to reverberate throughout the industry, starting at Merrill Lynch.

The roughly 14,800-advisor firm is reviewing its policy on commission-based business in retirement accounts following the official demise of the Department of Labor's fiduciary rule. The reassessment opens up the possibility that the wirehouse could reverse, either in whole or in part, a policy that some brokers found to be too restrictive.

"Now that the regulatory environment has shifted, we’re taking a look at our policies, especially as they might affect policies and procedures for Individual Retirement Accounts, to ensure we keep our clients' best interest front and center. Our core strategy, consistent with our principles, remains unchanged," a spokesman said in an email.

The review also indicates how some firms may reevaluate their policies in a shifting regulatory environment. Many firms overhauled policies, compliance procedures, technology and investing platforms in response to the regulation.

When the Labor Department first implemented its fiduciary rule, Merrill took a lead in crafting a policy that effectively banned commission-based business in clients' retirement accounts. While the move was praised by some and derided by others, the firm has noted that clients still have access to alternative investing options through Bank of America's other business lines, such as Merrill Edge and Merrill Edge Guided Investing, the company's robo advisor.

Later, the firm pivoted in May 2017 to add exceptions to that policy.

"We have analyzed the limited situations where recommending a fee-based arrangement might not be in a client's best interest and have considered alternatives [to the firm's Investment Advisory Program] for these situations," Andy Sieg, head of the wirehouse, told employees in a memo at the time.

The firm's latest policy review is slated to last 60 days, according to a person familiar with the matter. The company would also be remiss if it didn't re-examine its position in light of the fact that fiduciary rule no longer exists.

(Bloomberg News)
(Bloomberg News)

The Wall Street Journal first reported the firm's policy review.

The move is a welcome one, according to one Merrill Lynch advisor who requested anonymity to discuss the matter and who found the fiduciary rule to be too restrictive on client choice.

Some advisors who left the firm to work for competitors cited the original policy as a reason to make their career move.

“There has been a lot of pressure internally from existing advisors to make a change,” says Frank LaRosa, CEO of Elite Consulting Partners, who places advisors with the wirehouse. The grumblings from Merrill advisors about the ban have grown louder in recent weeks, he says.

That’s because not all clients are interested in paying 1% on assets for buy-and-hold accounts, he says. That is especially true for clients in low turnover accounts that are only looking for traditional trades. “There are times when doing a commission-based relationship with a client is the right thing to do. Not everyone wants to pay a 1% annual fee to manage their money when they’re only doing a few trades a year,” LaRosa says.

But it's not just clients that want options, industry insiders say.

“Advisors want choice,” says Mickey Wasserman, founder of the recruiting firm Michael Wasserman & Associates. “Anything that limits them, of course, takes away that choice from both them and their clients. They want the ability to use commissioned accounts in the event they wanted to. It’s part of a retention plan,” Wasserman says.

The fiduciary rule, which went into effect in 2016 under President Obama’s administration, has come under fire from the brokerage industry and trade groups, which claimed that it unnecessarily hiked costs and restricted client choice.

Trade groups sued the Labor Department in a bid to block the rule from taking effect. And after President Trump took office, he ordered the policy be reviewed with an eye to rescinding it.

The rule was vacated earlier this year by a federal appeals court, which was hearing an appeal of a case led by industry trade groups such as SIFMA, FSI and the U.S. Chamber of Commerce.

Meanwhile, the SEC is considering updating its own standards of broker conduct. The regulator is currently taking public comment on its proposed best interest rule, which some fiduciary advocates have criticized as being too weak.

Sean Allocca

Sean Allocca is an associate editor of Financial Planning, On Wall Street and Bank Investment Consultant.