Products March 10, 2017

Merrill Lynch Rethinks Move Away From Brokerage IRAs

Amid the effort to roll back the fiduciary reforms, retirement advice providers that moved early to get into compliance with the proposed conflict of interest standards are left to reassess how to proceed.
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The future of the Department of Labor (DOL) fiduciary rule reforms adopted under former President Barack Obama is now in doubt under the leadership of the Republican-controlled Congress and White House.

Amid the effort to roll back the fiduciary reforms, retirement advice providers that moved early to get into compliance with the proposed conflict of interest standards are left wondering how to proceed. Should they continue to move toward flat-fee based business to meet the organic client demand for such arrangements that will continue to exist despite the regulatory picture? Or is the whole project becoming unnecessary given the well-established use of commissions in today’s marketplace and the new administration’s apparent loathing of financial market regulation?

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Among the many firms contemplating this difficult picture is Merrill Lynch, which earned trade press headlines again this week for the way it is reforming its individual retirement account (IRA) business. The firm has been an early mover as the fiduciary landscape has shifted and changed, first under President Obama and now under President Donald Trump. It was way back in October 2016 that Merrill Lynch became one of the first major firms to announce it would respond to the tougher fiduciary standard by no longer selling advised, commission-based individual retirement accounts (IRAs), starting in 2017. Then again in November 2016 the firm made another announcement to the effect that it would halt the practice immediately to head off any potential issues with future compliance.

The announcement represented a major shift for many of the firm’s 14,000 advisers. At the time, the firm indicated that clients who traditionally would have been served by the commissions-based IRA brokerage platform would instead be directed toward other segments of the Merrill Lynch business including primarily the Merrill Lynch One platform offering a single, asset-based fee schedule, as well as the firm’s Investment Advisory Program. Self-directed and guided investing would be permitted through the Merrill Edge platform, as well, providing clients with additional flexibility and choice. 

New details emerging from the firm suggest it is now delaying some of its planned reform strategies and entering, more or less, a wait-and-see mode. Moreover, firm leadership may feel a need to remain flexible and adaptive in such a rapidly evolving and unclear environment. For example, it now seems the firm will delay work to implement “fee leveling” for advisers and clients using the Investment Advisory Program, a task that was expected to be quite challenging not just for Merrill Lynch but for all providers with similar offerings.

Important to note, the firm is apparently not backing away from the recently established restrictions of sales of certain products including mutual funds, within commission-based IRAs—so it seems the fundamental approach remains the same for Merrill Lynch moving forward. The firm also will continue to work with third-party asset managers to significantly improve and automate the process around sales charge waivers to ensure that clients are receiving all appropriate savings privileges, whatever platform they use. One component of this sales charge waiver policy will be to enable an automatic non-taxable exchange of C shares to load-waived A Shares for some clients. 

All indications are that the firm will seek to be flexible when it comes to structuring its investment platforms and charging fees to clients, but leadership is signaling that it believes fiduciary service will be a primary component of its long-term future. Even if the rule is eliminated, and some form of brokerage IRA accounts remain, leadership anticipates the primary vehicle for managing retirement assets will still be Merrill Lynch One. This is the platform that at present most closely meets the requirements of fiduciary care under the Employee Retirement Income Security Act (ERISA).  

The firm further tells PLANADVISER that it will, unsurprisingly, have more announcements to make about its business model in the near future. There are still questions to be answered about how to effectively move people and products onto flat-fee based platforms, and the firm says it is eager to work on finding new and innovative solutions.

Client Service March 10, 2017

Female Advisers Try to Include Both Spouses in Meetings

They are also starting to create women’s networks to retain female clients.
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Edward Jones surveyed 100 of its top female advisers who attended its annual Women’s Conference in February about their concerns and how they are serving their female clients. The most substantial finding is that 64% believe it is important to include both spouses in meetings. This sentiment is consistent among all age groups—65% among those 29-44, 64% among those 45-63 and 67% among those older than 63.

“I find that involving both spouses in meetings is incredibly beneficial from a client retention perspective,” says financial adviser Jennifer Marcontell. “This ensures that female individuals are involved in the planning process and helps me as a financial adviser to better understand the family’s financial goals and concerns.”

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Citing data from the Center for Talent Innovation, Edward Jones notes that women hold 39% of the nation’s $28.6 trillion in investable assets—and that nearly 90% of women will take sole control of their finances at some point in their lives. Edward Jones says this is the largest market opportunity for financial advisers, be they male or female.

Other efforts that women financial advisers are making to retain female clients include leveraging existing client relationships, cited by 29%. But some female advisers are also starting to employ new techniques, including creating women’s networks, cited by 4%, and using advertising and social media, which 3% are doing. Interestingly, while a mere 4% are using women’s networks, 100% of the female advisers between the ages of 45 and 63 said that this could be the most impactful strategy.

NEXT: Concerns and stratagems

Edward Jones also asked female advisers about their concerns and policies. Only 11% are worried about political uncertainty over the next year, and a mere 3% are concerned about robo-advisers, even though assets managed by robo-advisers have soared from $11.5 billion in 2014 to $61 billion in 2016, according to Business Research Co.

Female advisers’ lack of concern over robo-advisers is testament to their faith in their client relationships, says Katherine Mauzy, principal of financial adviser talent acquisition at Edward Jones. “Female financial advisers are less worried about the impact of robo-advisers on their business and are finding new ways to work with female clients through women’s networks,” Mauzy says.

Female advisers are anxious, however, about the current regulatory environment (42%). This soars to 83% among advisers older than 63%.

Asked about their keys to business success, 39% of female advisers say perseverance and 38% said confidence.

Mauzy noted that although only 14% of financial advisers in the U.S. are female, women make up 19% of advisers at Edward Jones. She also says that the firm is working to create networking opportunities both within its walls and throughout the industry to boost that percentage even higher.

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