Merrill Lowers the Boom on Documentation
Despite growing expectations that the Trump Administration will delay, if not abolish, the Department of Labor fiduciary rule scheduled to take effect in April, firms are intensifying efforts to have brokers document every discussion and investment recommendation they have with clients to protect against potential litigation.
At Bank of America Merrill Lynch, which is prohibiting commissions and mutual fund sales in retirement accounts to ensure compliance with the fiduciary standard, brokers have been told to complete investment performance reviews for 100% of their clients by the end of the year, said two sources familiar with the effort.
The effort is embedded in Merrill’s “Client Experience Standard,” a program introduced in 2013 that allows brokers to document financial reviews and requires them to log at least one retirement goal into the firm’s Wealth Outlook planning software. Because the DOL rule permits customers to bring class-action suits if they believe brokers or firms are not acting in their best interest, Merrill is leveraging the program as a defensive tool.
While not mandatory, management has been turning up the heat and suggesting that penalties, including probation, could be imposed for seriously delinquent brokers and managers, a veteran broker said. A Merrill Lynch spokeswoman declined to discuss the effort.
Merrill is also requiring all brokers working with retirement accounts to qualify for a new internal certification. Accreditation will require completion of two courses, said a person familiar with the plan.
Merrill is not alone.
“I’ve never been hammered more about keeping good notes and been put through more training sessions about it,” said a veteran Wells Fargo Advisors broker who has been a registered rep for more than 25 years. The firm is upgrading its note-taking software and making sure that client investment objectives are recorded and met, the broker said.
A survey of brokers and investment advisers released Wednesday by AdvisoryWorld, which sells investment analytics, portfolio modeling and proposal generation software, found that 69% of respondents have augmented their documentation practices in advance of the DOL this year compared to 38% in 2015.
“It’s just extra work but certainly is the right thing for the client,” a Merrill broker in New York City said of the pressure to review each account. The rub, however, is that not every client wants such a review, he said.
Both brokers and consumer advocates believe the new documentation will stick even if opponents of the fiduciary rule succeed in rolling it back. “If you’re a big firm trying to make advisors act like advisors, you’re going to force some additional documentation,” said Barbara Roper, director of investor protection at the Consumer Federation of America and an ardent supporter of the fiduciary rule. She added, however, that fiduciary rule opponents in the insurance and securities industry are clearly stepping up efforts to overturn the DOL rule now that Republicans are in power in the White House and in Congress.
At a House Financial Services Committee meeting in Washington on Tuesday, Missouri Republican Ann Wagner singled out Merrill’s decision to prevent mutual fund sales in individual retirement accounts as depriving investors of choice and urged regulators to refrain from broadening the fiduciary rule to non-retirement accounts.
Wagner, whose St. Louis district includes the headquarters of Wells Fargo Advisors, Stifel Financial and Edward Jones, co-sponsored a resolution last summer to kill the fiduciary rule. President Barack Obama vetoed the effort, and Democrats prevented Congress from considering an override. Jeb Hensarling (R., Texas) echoed the remarks on Wednesday saying that they were holding talks with the President-elect about overturning the rule, according to reports.
“There’s no question that congressional Republicans will again seek to overturn the rule,” Roper said. “But anyone who thinks they know how this issue is going to play out [must] have better sources of intelligence than I do.”