June 4, 2015 / 11:05 PM / 2 years ago

Exclusive: Merrill brokers win a battle to lower client fees on advisory accounts

A Merrill Lynch building is shown in downtown San Diego, California March 18, 2014. REUTERS/Mike Blake

NEW YORK (Reuters) - Merrill Lynch this week surrendered to pressure from its retail brokers to allow them to cut account fees for wealthy clients, retreating from a two-year effort to force increases as part of a shift to a new platform, according to a memo obtained by Reuters.

The Bank of America-owned brokerage (BAC.N) told its 14,000 brokers almost two years ago they would be paid less if they cut fees too aggressively on a new account the firm was introducing. The policy gibed with a broad effort across Wall Street to curb heavy discounting of fees and commissions by brokers.

But many Merrill brokers complained that the policy would either antagonize customers if they followed it or hurt their own wallets if they did not.

Several told Reuters that they would wait until the last minute to move assets from five older systems that are being consolidated into a single new one - a shift that would trigger the change in fees but run afoul of Merrill executives’ hope for a timely transition to the new system.

In a memo sent to brokers on Monday, the firm relented, giving them leeway to cut fees by 15 percent or more on certain accounts to avoid penalizing both clients and brokers.

Merrill introduced the new system, called Merrill One, in late 2013, but gave brokers until the end of 2015 to transfer clients’ assets. As of this week, six months before the deadline, over 40 percent of $650 billion in client funds eligible for transfer had not been moved to Merrill One.

“There has been a lot of backlash on the fees,” said one broker, who asked for anonymity because he is not authorized to speak publicly about company policy.

Merrill Lynch promoted the new platform internally as a way to simplify billing and account management for brokers and clients. But in the short term, transferring clients to the system requires brokers to fill out new account paperwork and to engage in a potentially uncomfortable conversation about pricing. 

The Merrill memo, written by wealth management head John Thiel, product head Andy Sieg and two other executives, attributed the decision to alter the discounting policy to “changes in the marketplace” and to “Merrill Lynch One’s success.” 

A Merrill spokeswoman said the “changes” refer to a decision to let brokers amalgamate related Merrill Lynch One accounts from the same household to obtain higher pay. And though just under 60 percent of managed account assets have moved to the new platform, Merrill spokesman David Walker said that 98 percent of Merrill advisers have put some client money into Merrill One.

“The Merrill Lynch One investment advisory program has been a tremendous success based on client experience and asset growth, and is ahead of expectations,” he said.

CONVERSION PAINS

Brokerage firms across Wall Street are weaning brokers from their traditional roles as stock and bond salespeople who receive commissions when clients make trades.

Instead, they want customers to pay annual fees for a package of services that includes financial planning and fund selection. These arrangements allow brokers to spend less time picking securities to suggest to clients, and more time prospecting for clients and improving customer service.

For the firms, revenue from these accounts, known as “fee-based accounts,” is higher and more predictable than commission accounts.

Brokers get paid based on how much revenue they generate for their firm. Under Merrill Lynch’s new pricing rules, brokers get full sales credit if they charge a fee of 1.1 percent or higher on accounts with $500,000 up to $1 million. If the management fee dips below 1.0 percent of assets in the account, the broker receives no sales credit.

Merrill also altered pricing on accounts between $2 million and $4.9 million, lowering the fee on which they can get sales credit to 0.70 percent from 0.85 percent.

Reporting By Jed Horowitz and Elizabeth Dilts; Editing by Christian Plumb

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