Merrill Lynch plans to tell its more than 14,000 brokers today that they cannot receive commissions for advice on retirement accounts, becoming the first big firm to fundamentally shift its sales philosophy in the wake of the Department of Labor’s new fiduciary rule.
The decision by the Bank of America-owned broker-dealer has broad implications that will likely affect broker compensation, hiring policies, selling contracts between mutual fund companies and brokerage firms and the growth of no-frills investment platforms such as the bank’s own Merrill Edge program for “self-directed” investors.
Merrill’s decision means brokers who generate business by persuading people to roll over 401(k) company retirement plan assets into individual brokerage accounts and who charge commissions for individual retirement accounts will have to rethink their strategies and, more practically, “repaper” current clients by shifting them to fee-based accounts, or, by sending them to Merrill Edge.
To ease the transition, Merrill will allow advisors to discount the fee charged customers who remain with the firm but have to switch their retirement accounts to the fee-based investment advisory platform known internally as Merrill One, said a person familiar with the plan.
It only took a little more than six months for Bank of America Merrill Lynch to decide to pull the rest of its mortgage servicing business from PHH Mortgage Corporation, marking another devastating blow for the company.
PHH Mortgage, a wholly-owned subsidiary of PHH Corp., announced in an 8-K filingwith the Securities and Exchange Commission that it received written notice from Bank of America that it is terminating its agreement with PHH, meaning the company will no longer provide private label origination services on behalf of Merrill Lynch, effective March 31, 2017.
Former Merrill Lynch advisers who were fired after Bank of America merged with the brokerage in 2008 won back some of the deferred compensation on which they had missed out, according to a settlement filed this week in a North Carolina district court.
Bank of America agreed to pay $12.8 million to settle claims made by more than 270 former employees that the bank failed to follow proper procedures after terminating them. The ex-employees held that the procedures would have allowed them to argue they deserved to leave the firm with some of their deferred compensation that was not yet paid out.
Many Wall Street brokerages offer bonuses and other compensation in the form of deferred cash, seeing it as a way to delay immediate payouts and to lock in employees who might be tempted to jump to rival firms.
Have you recently sold a product to clients that basically lost all of its value? Do you want to do something to help your investors but have received some pushback from management? Consider taking the following steps:
- Get your boss on the phone and get him talking about how he knows the investment is a real dog but doesn’t want to make a big deal of it; have a recording device secretly running the whole time
- Secure a gig at another bank
- Once you’ve settled in at the new shop, file a whistleblower complaint against your former employer
The Securities and Exchange Commission is preparing a civil enforcement case against Merrill Lynch over an investment that fell as much as 95% in value and was marketed in a way that one of the firm’s financial advisers called “borderline crooked,” people close to the probe said…With clients complaining after the value of the notes plunged, the brokers secretly taped calls with executives at Merrill, left the firm for rival UBS Group AG and then filed a whistleblower complaint over the notes with the SEC…so-called roll costs averaged about 12% of the principal per quarter in the first half of 2011, before falling to an average of less than 4% per quarter in the second half of the year, according to Merrill. In the calls, the brokers allege they were never told the costs could grow so large…The advisers were told on the calls not to suggest to their clients the product was flawed. “What you’d love to do is avoid customer complaint,” Mark Ryan, a manager at the firm, told Messrs. Ringwall and Manion. “We can’t just tell everyone, ‘Hey this is a defective product.’”
A drop in the bucket…
Bank of America Corp. admitted to wrongdoing in settling a U.S. regulator’s allegations that it misused billions of dollars in customer funds to finance trades that benefited the firm.
The bank will pay $415 million over claims that its Merrill Lynch unit engaged in complex transactions to reduce the amount of client funds that had to be set aside in reserve accounts, the Securities and Exchange Commission said in a statement Thursday. Had the firm failed, its customers would have been exposed to a “massive shortfall,” the regulator said.
The $356 million fine portion of Bank of America’s settlement is by far the largest for a firm accused of violating the SEC’s customer protection rule. The agency was assisted by multiple former Bank of America executives who reported wrongdoing and cooperated with the investigation, according to Jordan Thomas, an attorney at Labaton Sucharow who represents the whistle blowers.
Just three months after Bank of America and PHH renewed their agreement for PHH to continue servicing Merrill Lynch clients, BofA decided to pull the origination of new applications for certain mortgages; both of the moves take the mortgages into internal operations.
PHH disclosed the information earlier today to investors.
This change represents about 20% of Merrill Lynch’s closing dollar volume, and about 5% of PHH’s closing dollar volume. Merrill Lynch will now perform these new mortgages internally starting on April 25, 2016. Merrill Lynch’s closing volume accounted for about 26% of PHH’s total volume for 2015.
In December, Bank of America Merrill Lynch agreed to continue using PHH’s services starting on January 1, 2016, however the terms of the agreement were not disclosed.
PHH received no assurances regarding the remainder of the Merrill Lynch origination activity, which could also be subject to change at any time during 2016 or beyond.