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September 8, 2020

Merrill Puts Kibosh on Meals and Gifts from Wholesalers

by Mason Braswell and Jed Horowitz
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News
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Bank of America, Merrill Lynch
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Comments (20)
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Merrill Lynch Exterior Sign and Logo
wolterke | stock.adobe.com

Merrill Lynch Wealth Management on Tuesday slammed the door on the longstanding brokerage industry tradition of allowing mutual fund, annuities and other product salespeople to entertain its brokers and clients with gifts, entertainment or funding for business meetings.

“To ensure that business interactions with third parties avoid even the perception of a conflict of interest, we are making a few changes,” a memo to the firm’s approximately 14,000 brokers and product specialists said.

Signed by Keith Glenfield, head of investment solutions, and Susan Axelrod, chief supervisory officer, the memo in a boldfaced bullet point said the third parties “cannot pay for gifts, meals and entertainment for employees.” They also are “not permitted to fund entertainment that we provide to our clients.”

A Merrill spokesman confirmed the memo’s authenticity.

“These changes further ensure business interactions with third parties continue to be in the best interest of our clients,” he said.

The memo did not directly mention the Securities and Exchange Commission’s Regulation Best Interest, which took effect at the end of June, but Merrill’s move could presage a widespread adoption of tougher entertainment policies industry-wide as firms revise supervisory policies to bolster compliance with Reg BI.

Merrill’s move overturns historic relationships between brokers and product salespeople.

“I have wholesalers I have been dealing with for 25 years, guys I consider friends outside of business” said a lifetime Merrill broker in the Northeast, who spoke on condition of anonymity. “Crazy. This completely handcuffs [the wholesalers].”

The new policy is immediately effective. Previously, Merrill allowed brokers to accept gifts or meals valued at up to $100 per year per provider, and to allow the third parties to sponsor events with a value of as much as $300 per person—up to $1,000 per client or prospect per year.

Investor advocates who criticize Reg BI as a check-the-box disclosure measure by the SEC rather than a fiduciary standard with teeth characterized Merrill’s move as window dressing.

“It’s all smoke and mirrors,” said Knut Rostad, president of the Institute for the Fiduciary Standard, who noted that the new policy does not stop Merrill from charging fund companies and others for getting access to their brokers. 

“It’s almost laughable that they pick this issue when there is so much more they could do to be more transparent in how they price and how they charge and what their customers pay.” 

The Merrill memo makes some concessions to traditional back-scratching from product salespeople. 

“Employees are permitted to accept novelty items bearing” the third-party provider’s name or logo if they have a value of less than $50 and are not “frequent and excessive,” the memo said.

It also permits employees to eat meals sponsored by third parties as part of approved training or seminar programs. But entertainment—read ball games, theater tickets and other common forms of baksheesh—will not be allowed once those forums revive after the pandemic. 

“That said, employees can attend business entertainment events and meals hosted by TPPSPs (third party produce and service providers) as long as they cover their own portion of the expense,” the memo said. 

Glenfield and Axelrod’s memo does not apply to Bank of America’s Private Bank (formerly U.S. Trust) or to brokers at the ‘low-touch’ Merrill Edge brokerage unit of the consumer bank, a company official said.

A Morgan Stanley spokeswoman said the firm’s policies are “designed to mitigate conflicts and are in line with regulatory guidance,” but declined to comment on specifics or whether it would review following Merrill’s move.

A spokeswoman for Wells Fargo confirmed that advisors can still accept meals, and a spokesman at UBS said he could not immediately comment.

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Comments (20)
  • on Sep 8 2020, DucatiDad says:

    How are newer advisors expected to grow. BAC thinks qualified clients fall from the sky !!!

    > Reply to DucatiDad
    • on Sep 8 2020, Jones says:

      Bank of America has won. They killed the BULL. That is very sad but today no one thinks about Merrill as Morgan Stanley prevails as the King of the Street.

      > Reply to Jones
  • on Sep 8 2020, Arnie says:

    Yea I always bought a few million of a fund for clients because some wholesaler bought me a ham and cheese on rye.

    > Reply to Arnie
  • on Sep 8 2020, Hypocrisy at its worst says:

    Best interest? Are you kidding? Will the firm still operate a pay to play model for their funds and managed money platforms? I guess it’s ok for the firm to pocket big checks but not ok for the advisor to eat a sandwich because it’s a conflict? What hypocrites. Vanguard funds remain off the Merrill platform because they won’t write a big check but this is the conflict? Look in the mirror B of A

    > Reply to Hypocrisy at its worst
    • on Sep 8 2020, Intrepid says:

      Agreed!

      > Reply to Intrepid
    • on Sep 9 2020, Go away says:

      Actually, Vanguard is very prominent in the CIO portfolios

      > Reply to Go away
    • on Sep 9 2020, Lifer says:

      This is not correct.

      > Reply to Lifer
    • on Sep 10 2020, Leo says:

      So Bank of America would like clients to trust its FAs with their life savings yet they don’t trust their own FAs enough to feel that they will do the right thing because they ate a bagel or went golfing with a wholesaler? Strong message.

      > Reply to Leo
  • on Sep 8 2020, J Odette says:

    Total irrational snap judgement big bank crap. They should have gone down with Lehman in 2008. They are lucky they are still in business. And then boa let the bull into the China shop and ruined there relationships with potential big clients In the bank system. Merrill edge is quite a stunning piece of $hit. You think those guys running around chasing money under $250,000 are doing anything in the best interest of their clients. Gimme a break Merrill with another really awful decision. Keep though lobbyists in dc rolling though. Senators need more knowledge on how to spend the tax payers money. What a joke.

    > Reply to J Odette
  • on Sep 8 2020, Joe Jones says:

    This rule doesn’t stop whole sellers for paying for events so the person in the article as well as one in the comments didn’t even read the email well. I personally think that’s a conflict of interest and that should be stopped industry wide (wirehouse and independent firms). That for me is a conflict of interest and should be stopped. Pay for your owns events and don’t have a third party pay for it promoting their products. You can grow your business without events so don’t tell me events are the only way to grow your business when you start up. As you get successful you are supposed to invest in your business and just pay for your events on your own. I think they were not strict enough and should stop that.
    The $50 limit on gifts that are branded doesn’t bother me and nor am I interested in getting a shirt with another company’s logo but I guess some people like free stuff. If a wholesalers buys you a coffee then you might feel like you have to reward him back somehow. Yes it starts with coffee and ends up being fancy dinners. If they have great products then you should use them no matter what and they are not getting hurt by this rule. Great job ML but need to do more. Clients come first and proud to work at the firm. (Except for banking quotas and referrals which are a conflict of interest too in a way)

    > Reply to Joe Jones
    • on Sep 8 2020, Ex-T.Herder says:

      Yes, SO proud…Merrill’s as pure as driven snow…apparently you haven’t read the disclosures(or don’t understand them) that you have your clients sign. Take a look at p.33 of the IAP disclosure under the heading,”Relationship With Asset Managers, Sponsors and Style Managers”:
      “From time to time, Merrill enters into distribution agreements with asset managers, fund managers, sponsors or Style Managers pursuant to which Merrill distributes certain products and services to clients with a brokerage securities account or those enrolled in the Program, as relevant. Due to these relationships, the management and employees of these entities have a broader level of access and exposure to Merrill, our management, our Advisors and other personnel. In addition, they have the opportunity for increased exposure at marketing events or in Advisor and client materials. Such access and exposure is not available to other asset managers, sponsors or Style Managers and enhances the ability of our Affiliates to distribute their funds and other investment products through us.”

      So “distribution agreements” provides a “broader level of access”, and “Such access is not available to other asset managers..”. I’m not so naive to believe these arrangements are cost free, are you? Some folks would call this pay to play, I won’t; you draw your own conclusions. Their disclosure here makes it all legal. Let’s cut the FA sandwich lunches, but don’t think about touching our Corp slotting fees.

      > Reply to Ex-T.Herder
    • on Sep 8 2020, Arnie says:

      Andy, Brian is this you?

      > Reply to Arnie
    • on Sep 9 2020, MERsux says:

      This changes nothing. Conflicts of interest are in Merrill Lynch’s DNA.

      > Reply to MERsux
    • on Sep 10 2020, Former WFA says:

      You do know grammar and punctuation, right?

      > Reply to Former WFA
  • on Sep 8 2020, Mr. Fenner says:

    Who cares? Active management has underperformed for so long, why would anyone invest with these clowns anyway? Could it be because wholesalers pay for local managers operating budgets? No wonder wirehouses cannot grow, doing business the same way since the 1980’s

    > Reply to Mr. Fenner
  • on Sep 8 2020, JTT says:

    So Merrill will stop taking money from said companies to pay for their reward trips and educational meetings? Hypocrites.

    > Reply to JTT
  • on Sep 8 2020, Raymond Charles, III says:

    100% agree with the hypocrisy of not disclosing fee-sharing agreements and broad pay-to-play dealings. But let’s be real: Merrill sheep are unable to meet their clients for lunch to use up their BDA (i.e the pre-tax money that the bank holds hostage.) So why would Andy and Brian allow them to meet with wholesalers?!

    Best Interest Practices:
    Stay at home. Utilize Merrill CIO models. Await your red cell phone so that the bank can monitor you more. Bring in households by leveraging the technology that is years behind competitors’. Don’t request LMA discounts for clients with more money—that wouldn’t be fair! Do your best throughout the year to earn back the 3% we take from you (this isn’t an incentive because it’s a stick, not a carrot!). Try to earn an extra 10 bps on your BofA balances by pushing LMAs, trust accts, managed accts, mobile app, and BofA checking accts. Push the clients toward more limited bank accts that yield less, and we’ll pay you more because you helped your firm save on costs! Indoctrinate the client associates in this culture of reindeer games so that they, too, feel pressured to cross sell. And then, fork over half of what you produce.

    > Reply to Raymond Charles, III
    • on Sep 10 2020, Bruce Simpson says:

      Spot on Mr. Charles. Don’t forget to shift focus of net new assets to just net new households. You need to make sure you get 8 so that we can maximize Andy’s bonus.

      > Reply to Bruce Simpson
  • on Sep 9 2020, Sam Turner says:

    If its not one thing it is another….everyday there is a new email about something that make no sense. The best is the new rules on cold calling…if a prospect says No or they are not interested during the call you immediately hang up and never call back again even if they never told you to put them on the do not call list. All these new rules have brokers leaving and going to places that allow you to be a broker.

    > Reply to Sam Turner
  • on Sep 9 2020, Roscoe says:

    Gorman expects wholesalers to pay for everything so it won’t happen at MS. Thats how offices pay for their Christmas parties.

    > Reply to Roscoe

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