Merrill Revamps Expense Account Program After Eye-Popping Error Rates
Perhaps Environmental Protection Administration head Scott Pruitt would be facing fewer questions about his expenses if Merrill Lynch were training him.
The Bank of America-owned wealth management unit told its more than 15,000 brokers and client associates last week that they must take an in-house course on how to manage Business Development Accounts.
BDAs are travel-and-entertainment budgets that are funded as a perk largely with pre-tax reimbursable deductions from brokers’ earnings.
Prompting the new training was Merrill’s finding that 66% of BDA submissions in the fourth quarter were returned “due to errors and ineligible expenses,” according to a five-paragraph “Action Required” memo reviewed by AdvisorHub.
The course has a three-pronged purpose: To help brokers and their staff “save time and capacity by submitting BDA expenses correctly the first time,” to “have confidence in how you’re using BDA” and to “stay in compliance and avoid any negative consequences,” according to the memo.
Falling out of compliance has serious consequences, whether the violations are seemingly petty bookkeeping errors or outright false claims, according to lawyers and regulators.
Morgan Stanley has fired a broker who claimed less than $300 reimbursement for a meal with family.
Merrill Lynch last month bid adieu to Michael Feller, a 20-year firm veteran in Evansville, Indiana, who was “permitted to resign” for submitting inaccurate business expense reimbursement reports, according to his BrokerCheck history. Feller produced more than $1.2 million but asked for repayment on a computer that he had returned, according to sources. The advisor, now with Stratos Wealth Advisors, did not respond to several requests for comment.
“Disciplinary actions are very severe because it’s stealing, and it’s easy to discover,” said Brad Bennett, the former chief of enforcement at Finra who is now a law partner at Baker Botts in Washington. “If firms find out, they fire. They have to know how money is spent as part of their controls, and regulators follow up. Compliance people on regulators’ disciplinary panels have no sympathy for this stuff.”
As part of its BDA revamp, however, Merrill Lynch acknowledged that the bureaucracy of the expense process can be intimidating. The memo said it is initiating enhancements to “facilitate and simplify the expense reimbursement process” for this year’s BDA program.
Among the changes: Merrill will no longer require that receipts itemize components of an expense submission, it will allow “team meals” for “legitimate” business reasons and it will accept online banking screenshots as a proof of payment, according to the memo.
Merrill spokesmen would not comment on the company’s motivation for the procedural filing changes.
It may not be coincidental that Merrill is proposing expense account submission efficiencies in parallel with efforts to rev up new account generation from brokers, something that can be greased by entertaining prospects, according to some brokers who spoke on condition of anonymity.
However, others said that liberalizing some submission requirements that may have tripped up brokers in the past is unfair.
“The more preferable option would be to re-educate all FAs about the BDA policies, and to exonerate and reinstate those of us who lost out in the past,” said a former manager who was fired almost a decade ago for alleged improprieties.
The former broker also said that violations will inevitably continue at Merrill and other large firms that offer expense-account budgets as awards, because the reimbursement programs are formulated on an annual use-them-or-lose-them principle. Brokers feel that they are entitled to the money because it comes out of their pay, and know that they can’t carry over reimbursement requests, he said.
Spokespeople at Morgan Stanley and Wells Fargo Advisors did not immediately answer requests for comment on whether their firms have made changes to their expense account programs for brokers. A spokesman at UBS Wealth Americas declined to comment.