Unlocking Real Value Blog

Merrill’s Fee Debacle

Your near the top of your industry and a cash cow for your parent (Bank of America). The future looks bright as the financial crisis of 2008 fades. So, what do you do? You announce a complicated new fee structure that on the surface looks like it may increase fees for many of your top clients in a fast growing (fee-based) business. Then you explain it in murky terms. Not, in my opinion, too smart!

These fee changes are part of a platform restructuring that merges five separate managed account platforms on to a new one called Merrill Lynch One (set to rollout in September). While currently, minimum fees are based on the amount a client has in a particular account, the new system will see a unified fee based on all of the assets a client has with Merrill. Great if you have multiple accounts, not so great if you don’t,and your account happens to be in one of the programs whose current fee structure is less than the new one.

It appears that the greatest change will be seen for clients with accounts in the Merrill Lynch Personal Advisor (MLPA) platform – currently about 1/3 of the total of all fee-based assets at the company. According to the Wall Street Journals, fees on some accounts might rise by as much as 60% by the end of 2015 (advisors have until that time to adjust/negotiate client fees).

Now the catch – according to Merrill spokeswoman, the changes will not be automatic. Clients can choose to use the new single platform and will pay “an agreed-upon fee” reflecting the value the client “places on the overall advice and services delivered by the advisor and the firm.” (As quoted in FundFire, a Financial Times Service, on August 2, 2013.) So, what exactly does that mean?

I have been doing this a long time, and I don’t really understand that statement! It seems that perhaps current clients will be exempt from fee increases; or will they? Grumbling among financial advisors has already begun, as has some negative press in some of the industry on-line publications. I’m all for transparency, and maybe this makes the system more transparent. But “making” your financial advisor negotiate fees with current clients now, when many people are still leery of the industry?

The debacle is not necessarily the new fee schedule or the new platform, which should make Merrill more efficient (and good at least for Bank of America shareholders). The debacle is the confusing the way in which the firm has handled this announcement and is potentially disrupting client relationships at just the wrong time.

Great way to destroy all of your positive momentum guys!

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