Merrill Sticks with IRA Constraints Amid DOL Rule Turbulence
Merrill Lynch has no plans to revise its ban on commission-based retirement accounts in spite of a blow inflicted on the Department of Labor’s fiduciary standard rule on Thursday by a federal appeals court.
“I’ve been gratified to hear many of you express pride in the position we’ve established and we remain committed to our approach,” Merrill Lynch Global Wealth Management head Andy Sieg wrote in a memo to the firm’s almost 15,000 brokers in a memo on Friday.
The Fifth Circuit Court of Appeals on Thursday vacated the Department of Labor’s fiduciary rule in a split decision that led many lawyers to believe the rule’s fate may ultimately rest with the U.S. Supreme Court. President Trump’s Labor Department, which had earlier delayed the effective date of the rule’s key enforcement provisions, said on Friday that it will not enforce any aspect of the Obama-era rule “pending further review.”
Asked if the government would appeal the Texas Circuit Court decision, a spokeswoman at the Department of Justice wrote in an email that it is “considering our next steps.”
Merrill’s decision to ban commissions in individual retirement accounts is consistent with a broad fiduciary standard, according to Sieg. “While there is uncertainty regarding the DOL’s next steps in light of this decision, our core strategy—consistent with our principles—remains that we always will act in our clients’ best interest,” he wrote.
The fiduciary rule was devised with an understanding that brokers who are paid commissions may be tempted to recommend higher-paying investment products, leading Merrill and some other firms to guide brokers and customers to retirement accounts in which fees are determined by the level of assets in the accounts.
A spokeswoman for Morgan Stanley, which has not formally banned commissions in retirement accounts but, like other firms, has vigorously promoted fee-based accounts, said that the firm is still reviewing the Fifth Circuit’s decision.
Edward Jones, the largest broker-dealer as measured by its salesforce of more than 16,000 advisors, will not rush to amend its fiduciary rule policies. “We’re not making any changes as a result of this ruling in the Fifth District,” said company spokesman John Boul. “We’re obviously monitoring it closely and analyzing what the court said, but we’re not making any changes as a result.”
The Labor Department in early June put into effect parts of the rule requiring brokers to abide by standards of prudence and loyalty, requiring them to charge “reasonable compensation” and to accurately represent information about investments and conflicts of interest.
But it said it would not “pursue claims against fiduciaries working diligently and in good faith to comply.” Under orders of President Trump, it also agreed to review the entire rule and to delay some enforcement strictures.