Earlier this week, Merrill Lynch announced that it is nixing a ban on charging commissions in retirement accounts, marking a reversal for the Wall street brokerage that just a few years ago said fee-based services are better for clients. It is now clear that the reason Merrill ceased commission-based brokerage IRAs through its advisors few years ago was due to the imminent Labor Department’s fiduciary rule, set to kick off in April 2017. The fiduciary rule was meant to protect retirement savers from conflicted financial advice. Following Trump’s election, the environment changed. Earlier this year, the U.S. circuit court struck down the Labor Department’s fiduciary rule, dealing a blow to the retirement-savings regulation. Within few months, Merrill jumped at resuming the commission business giving the reason that its move follows feedback from clients, who have complained about a lack of choice in how they pay and that clients did not like the transition to a fee-based model, which typically costs roughly 1% of assets under management. Instead, they are going to move these clients in an advisory account to charge for advice and commissions on every trade and of course, ply their own mutual funds, on which they get to charge additional commission. This system will cause clients to pay $125 – $150 for every trade and the advisor will get bonuses on the products they place in client portfolios. This is somehow better for clients.
The fiduciary rule was created requiring advisers to act in their clients’ best interests when it comes to managing retirement accounts. Now that it has been killed, all the big banks and smaller ones are soon to follow Merrill’s lead and snatch back the millions of dollars that they enjoyed in commissions from clients. And clients, who all along thought these companies were actually investing in their best interests are now back to falling prey to the machinations of advisors who benefit, not from client’s assets and performance, but from the putting clients in products that give them the most commissions.
Future Wealth’s View
The fiduciary rule, also known officially as the “Conflict of Interest” rule, states advisers have to give conflict-free advice on retirement accounts, putting their clients’ needs ahead of their own potential compensation. That means shifting away from commissions on various investment products and becoming completely transparent on what they do and the advice they provide. The Obama administration, which proposed the rule, claimed it would save Americans $17 billion a year from conflicted advice. Trump administration delayed the rule implementation and now the rule is officially dead.
To hear Merrill justify why giving conflict free advice is not what clients want, is ludicrous. Investors are now back to being at risk of swindled by one’s who could end up selling them unnecessary products and do it frequently to drive up commissions. And the administration is going to do nothing about it.
Future Wealth was founded on two main principles – 1. To protect the interests of the client and 2. To have no conflict in the investments we recommend to our clients, both of which are hallmarks of the Fiduciary Rule. Yes, we may not have a shining new red Ferrari parked in our garage, bought from the bonuses and commissions, but we sleep well at night and so do our clients.