Merrill Lynch will again accept commission-based individual retirement accounts, but the invitation excludes commission annuities.
Only fee-based annuities will be allowed, but there’s a reason for that, according to Merrill Lynch.
Annuities are complex, and a fee-based advisory platform is the best way to serve advisors who have clients with annuities in their IRAs.
“IRA annuity assets are held in our Investment Advisory Program, which offers more transparency and liquidity for clients, along with our ongoing advice for a complex product,” a Merrill Lynch spokeswoman said.
In October 2016, Merrill Lynch became the first broker-dealer to announce it would eliminate commissions from IRA accounts in response to the Department of Labor’s fiduciary rule.
When the rule was vacated by a federal court earlier this year, Merrill Lynch reversed itself. Now the company and its 17,400 advisors have come full circle.
“While the regulatory landscape has changed, we see important advantages to serving our IRA annuity clients through our fiduciary platform, which provides a higher standard of care and ensures an annual client review,” Merrill Lynch said.
Restrictions On Choice
But if Merrill Lynch’s fiduciary platform offers a higher standard of care, it also restricts the type of annuity that can be sold on it. This is because there are so few fee-based annuities in the market today compared with the mass of annuities available with commissions, which is how most annuities are sold.
Indeed, insurance executives point to the fact that in many cases commission-based annuities serve clients more efficiently than fee-based ones because they can be less expensive, especially for clients who hold their annuities over long periods.
While Merrill Lynch “will continue to monitor client and advisor feedback” to "ensure clients needs are being met,” excluding commission annuities is a sign Merrill Lynch would rather stay away from any potential regulatory and suitability issues.
“Big broker-dealers would rather keep it simple,” and move forward with fee-based advisory platforms, said Danny Sarch, founder and owner of advisor recruiting firm Leitner Sarch Consultants.
Complexity and high fees attached to traditional commission-based annuities have – unfairly, some say – tarnished the reputation of an entire product class. This has caused many advisors to steer clear of them.
Many annuities, such as single premium immediate annuities, are not complicated at all. However, one of the reasons to buy annuities is for their lifetime income or living benefits, and those features can add to an annuity’s complexity.
Advisory Relationship Makes Sense
That’s when an advisory relationship makes sense, said Tamiko Toland, head of annuity research for Cannex USA, an annuity quoting platform.
Advisors can tell clients when to turn on income depending on a client’s financial situation or what is going on in the market, she said.
There are plenty of reasons why a client may need to veer from their financial plan – a death in the family, a layoff, an unforeseen medical expense – which is why the professional advisory relationship remains an important.
“You need professional advice to understand how that product works and say this is a good time to turn on the income,” Toland said.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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