The US wealth management giant said it is pressing ahead with changing its fee model to suit a fiduciary standard, even if a new regulatory regime is delayed.

Merrill Lynch in the US is moving ahead with shifting almost all clients to a fee-based charging model in line with the Department of Labor Fiducuary Rule even though this new regulatory framework, designed to push firms away from commission-based payments, is being delayed by the new US administration.

This publication understands – as also reported by the Wall Street Journal yesterday – that the wealth management house is pressing forward with moving retirement accounts to a fiduciary relationship. In some specific cases, however, Merrill Lynch is considering situations where a move to fee-based advice is not sought by clients or in their best interests. The firm has around 14,500 advisors.

The Trump administration has delayed rollout of the rule, due to originally take effect from April 10, by at least 60 days. There is a risk that the rule, which would affect more than $3 trillion of assets, might not come into force at all. This matter coincides with the administration’s desire to review, and possibly roll back, the Dodd-Frank legislation on financial services that came into force in 2011. Last year, the DoL unveiled the rule that imposes standards on how brokers charge clients to make sure they put customers’ interests first. The rule is designed, its supporters say, to make financial services in the US more professional and less subject to product “push” from fund providers and other entities. Morgan Stanley recently announced that its wealth management clients can if they wish continue to pay commissions to advisors, putting it on a different track to Merrill Lynch, its largest rival. Morgan Stanley said clients can also choose the option of paying a fee based on the value of account assets.

For the majority of Merrill’s clients, its primary approach for delivering ongoing advice and service for the retirement accounts is its Investment Advisory Program. The firm serves as a fiduciary to 537,000 clients in the IAP, including $208 billion in Individual Retirement Accounts, or more than half of our total IRA assets under management.

Merrill is maintaining product restrictions put in place including purchasing Mutual Funds in brokerage IRA. (These run alongside other products restrictions put in place such as non-tradable REITS, special investments, Life Insurance, Health Saving Accounts, Education Savings accounts).

The firm is understood to be working on adding additional products to its IAP, such as annuities; as products are added to the platform they will become restricted in brokerage IRAs.

The US firm said there may be limited situations where fee-based arrangement may not be in clients’ best interest. Merrill is looking at possible alternatives to the IAP for some clients.

“Washington, Merrill Lynch remains steadfast in its commitment to provide investment advice in our clients’ best interests, particularly with respect to their retirement accounts. As you know, since 2010 we have consistently and publicly supported the adoption of a higher standard for personalized investment advice, including through the rule-making processes of the SEC and the Department of Labor. And today, we serve as a fiduciary to 537,000 clients in our Investment Advisory Program, including $208 billion in IRAs, or more than half of our total IRA assets under management,” Andy Sieg, head of Merrill Lynch Wealth Management, said in an internal memo seen by Family Wealth Report. 

“As we’ve worked over the last year to meet the requirements of the DoL’s Conflict of Interest Rule, we’ve recognized that there may be limited situations in which a fee-based arrangement would not be in a client’s best interests. We are reviewing those limited circumstances to consider potential alternatives to IAP for some clients in a manner consistent with a higher standard of care. While we are prepared to implement the DoL Rule in April, a delay of the Rule’s April 10 applicability date may provide us with additional time and flexibility as we work through these issues,” Sieg said.