Merrill Lynch to Stop a Commission Based IRA Sales

[Golfnut2112]

I just seen Merrill Lynch is stopping all commission based sales in IRA accounts next year.

If this is a national trend are you going to start offering fee based accounts of just get out of the IRA market

 

[DHK]

This is great news for RIAs and independent agents/advisors.

Large national firms, such as Merrill Lynch (BofA), have to manage their compliance to the lowest possible standard of reps that they hire. They don't want to take the BICE risks with new hires and those who are only in it "for the money"... or that they are selling commission-based products ONLY because they are commission based.

If you can't substantiate your recommendation at the fiduciary level, one should not be recommending it... period. Especially if you are going to be held accountable at the fiduciary standard of care.

I believe that the BEST possible business model for advising those with retirement accounts will be the independent agent/RIA hybrid model.


All that being said, all that could go away depending on who is elected to office.

 

[Golfnut2112]

I hope it does. I know Ohio National just introduced an index annuity which can only be sold thru broker dealers. Do you think other companies such as Allianz, American Equity will follow suit?

 

[DHK]

It depends if annuity companies are willing to be the financial institution to sign for BICE purposes... or just remain a product manufacturer.

It's easy for Variable Annuities because they are only sold through broker/dealers, and the B/D would sign off on the BICE. Plus, B/Ds already have compliance officers and people to run the transactions through.

However, with the current ruling, there is no "institution" to sign off on the BICE for independent agent's FIA sales. I know that Partners Advantage is filing to become a 'financial institution' for BICE purposes... but I don't know if that will work or not.

If the ruling stays as it is, I think it will be the end of the independent agent selling fixed indexed annuities on their own. They will HAVE to be a part of a financial institution (RIA or B/D) or form their own RIA in order to advise for qualified plans.

If independent agents join an RIA as an IAR, the RIA will have to have their own "insurance division" to have an approved suite of companies/products. It will also require a "haircut" of the commission or override on all production to account for the increased cost of doing business.


Allianz *might* be different with their preferred agent program based on previous production or current quality designations? I have not heard anything specific at all, but it would seem that they *might* be more willing to sign off as the financial institution for BICE purposes, if you are part of their preferred program through an eligible IMO.

Allianz Preferred | Program Qualifications

 

[KRobby]

I just seen Merrill Lynch is stopping all commission based sales in IRA accounts next year.

If this is a national trend are you going to start offering fee based accounts of just get out of the IRA market

No surprise, Merrill has been pushing fee based for years now, the bosses make more.

 

[Golfnut2112]

Merrill is not the only firm pushing fee based planning, everyone seems to be doing it. Merrill is doing it just on qualified sales you can still do non qualified commission business. As far as the money, a broker can make more money in fee business, but it's going to take 4 to 7 yrs to do it.

My question is how many people here are even going to take on new clients with smaller amounts to invest if they are only making 1% minus the dealer cut.

 

[walthamny]

That is the major down side of the new DOL rule. There would be less and less people entering this business by selling annuities. I survived my first 2 years at NYL selling VA's and load mutual funds, in addition some life insurance here and there. I could roll over 50K to 75K a month on average, make about 6% with training allowance and survive. Now one would need to roll over about 10 times that amount each month to make a survival level income, and that is not an easy task for a new comer. Or you have to come into the business with 3 years of income already saved. There will be less and less independent financial advisors joining the business. May be an unintended consequence would be more people joining captive life insurance companies and large RIA's to survive the first few years.

 

[scagnt83]

Great American already has a RIA only FIA with no comp paid. But they show no signs of slowing down with innovation regarding their traditional products either.


What I can guarantee is that FIAs will continue to be sold to people with smaller amounts to invest. IMOs are already looking at becoming registered as a "Financial Institution" so that they can still sell FIAs under the Financial Institution exception... of course that would mean agents have to become "employees" of the IMO in some shape or form.... so who knows what that would look like?! Some type of a "quasi captive" type situation maybe...


I think that if the regs do go through, you will see some Carriers/IMOs/BDs punt on doing anything meaningful until the DOL gives actual guidance surrounding the regs. This often happens when the IRS enacts new regulations that are filled with vagueries.

 

[pfg1]

Merrill is not the only firm pushing fee based planning, everyone seems to be doing it. Merrill is doing it just on qualified sales you can still do non qualified commission business. As far as the money, a broker can make more money in fee business, but it's going to take 4 to 7 yrs to do it.

My question is how many people here are even going to take on new clients with smaller amounts to invest if they are only making 1% minus the dealer cut.

Right! And throw in the commercials we're already seeing on tv... "did your investment lose $, if so call 'dewey cheatem and more'...."

So you make tiny amounts per year, have added compliance and regulation... and now you have to potentially defend yourself on a small $25k account that the owner saw some slimy attorney ad on tv and wants to come after you...

Its gonna be interesting. Good ol big brother, helping us out again.

 

[Golfnut2112]

Right! And throw in the commercials we're already seeing on tv... "did your investment lose $, if so call 'dewey cheatem and more'...."

So you make tiny amounts per year, have added compliance and regulation... and now you have to potentially defend yourself on a small $25k account that the owner saw some slimy attorney ad on tv and wants to come after you...

Its gonna be interesting. Good ol big brother, helping us out again.

That's a very good point. I cannot see myself ever opening an IRA for a new client or take on anyone with less than $50,000. Its just not worth my time and increased liability.