Can Merrill Lynch, which oversaw $2.75 trillion in client money at the end of last year, really unring the bell on hidden fees at America’s stock brokerages?
Just a few months ago, Merrill was trumpeting to the heavens a newfound commitment to putting its customers first.
They talked about it in the press and built a nice webpage to explain it. Here’s Merrill’s own words, just recently taken from that very site:
“Our clients are the most important part of our business, so we put their goals at the center of the critical decisions we make each day. The Department of Labor rule requires all financial advisers to provide a fiduciary standard of care to client’s retirement accounts when providing investment advice. This means that your adviser acts in your best interest when providing investment advice.”
This sounds great. It’s exactly what most people think Merrill already does for them. But the fact that the Bank of America BAC, -0.08% unit had to explain their philosophy is telling.
Simply put, before the fiduciary rule Merrill didn’t put the client first. Then the rule was enacted, so Merrill made the fiduciary standard of care company policy.
Now it appears Merrill is looking for a way out. The Wall Street Journal reports that upper management is trying to figure out how to allow brokers to charge those fees once again.
What changed? Well, a court case halted the fiduciary rule, for one. Then the current administration declined to defend it.
So the rule — which required retirement advisers to put their clients’ interests ahead of their own — died on the vine.
Read: Is the fiduciary rule dead or alive? What its fate means to you
Merrill is reported to be performing a 60-day review of its own policy, enacted two years ago. Here’s what Merrill told the press after notifying their 14,000 financial advisers nationwide of a possible reversal on the fiduciary rule.
“Now that the regulatory environment has shifted, we’re taking a look at our policies, especially as they might affect policies and procedures for individual retirement accounts, to ensure we keep our clients’ best interests front and center. Our core strategy, consistent with our principles, remains unchanged,” the company said in a statement.
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Doublespeak
It’s a lovely bit of doublespeak, no doubt painstakingly written by some PR group with the compliance department looking on.
See if you can follow along. They’re looking at policies and procedures (that could mean anything) with regard to individual retirement accounts (bingo, this is about fiduciary!) to keep clients’ best interests front and center (hmm, we thought you did that previously?).
Nothing has changed yet. But Merrill is nevertheless taking 60 days to tie itself in knots over a common-sense rule because “the regulatory environment has shifted.”
This is what politicians call a trial balloon. It works like this. You float an idea into the media by either deliberately writing a press release or talking about it publicly. Sending a message to 14,000 employees definitely does the trick.
You make clear that there’s no plan to do anything but that you’re considering a change. Of course, the only change that could possibly matter here would be renouncing the fiduciary rule and going back to charging hidden fees.
So the press assumes that’s on the table. Now sit back and wait for your customers, or Congress, or your competitors, or someone to react.
Like a poker player, you let slip a fake “tell,” a slight tic or grimace that sends a vague but meaningful message. You hope the other players fall for it, then play your best hand from there.
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Sales model
It seems incredibly obvious that Merrill Lynch and the other big broker-dealers never wanted anything to do with the fiduciary rule. Their employees make too much of their income on hidden fees, inflated costs and conflicted advice.
The entire Wall Street sales model is a game of “you scratch my back and I’ll scratch yours.” The loser at the poker table, the patsy, is the client paying the fees.
That’s because seemingly small investment fees inexorably compound. They add up to a third or more of investor return over decades. The client takes all the risk but shares a big slice of the reward.
That’s exactly why Merrill would want to bring them back. Outsize fees are the business model.
“Our clients are the most important part of our business, so we put their goals at the center of the critical decisions we make each day.”
Clients were never the center of the fee-driven financial adviser business model. Broker commissions and shareholder profits were always the driving force.
Merrill seems to be headed back toward the old way of doing things, at the cost of their own clients’ financial well-being.
Or maybe this balloon just conveniently pops in a couple of months, and nobody cares.
We shall see.