Merrill Puts Kibosh on Meals and Gifts from Wholesalers

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.