Newsflash! According to the Wall Street Journal, “Merrill Lynch may reverse a ban on commissions in retirement accounts the firm manages, marking a potentially significant retreat for a leading advocate of fee-based accounts.”

Yes, the same Merrill Lynch that banned commissions in retirement accounts when the Labor Department’s “Fiduciary Rule” went into effect in April of 2016.

The same Merrill Lynch that fired up a media blitz touting its new policy and commitment to clients’ best interest, which was not, apparently, in Merrill’s best interest before.

All that groundbreaking happened because the new fiduciary rule was meant to protect retirement savers from conflicted financial advice from brokers seeking commission income.

So, what happened? What’s making “Mother Merrill” contemplate a return to the good old days of churning out commissions, which, of course, no brokerage would ever do?

I’ll tell you, but you may not like the truth…

What’s Really Going On

I’m poking fun at Merrill because it’s the first big brokerage to consider making a 180-degree pirouette on embracing the Labor Department’s fiduciary rule.

But make no mistake about it; it won’t be the last brokerage to spin on its heels.

Big brokerages moved years ago to charging fees for assets under management (or AUM) as opposed to commission-based accounts. That happened for two reasons:

1. The advent of discount brokerages killed their fat-commission business models, and:
2. The wealthier clients that big brokers wanted weren’t big stock traders.

So why not lure them with a tidy little fee-based service set-up?

It’s not that you can’t trade in fee-based accounts – you can. Some brokerages offer a bunch of free trades you can make every year. But, once you’ve topped out on those trades, you get charged another fee for more trades, or you are offered a set number of trades for a set price. There are still pure commission-based accounts for pure traders, which makes sense for everyone.

The Labor Department’s rule was all about retirement accounts. That was controversial, because it was the Labor Department dictating to Wall Street banks what they could or couldn’t do, and not the SEC or another Wall Street regulator.

They held sway because the type of retirement accounts affected are the ones established under ERISA, the 1974 Employee Retirement Income and Security Act, which was enacted by the Labor Department.

With the new fiduciary rule kicking in, Merrill was all about the benefits of charging fees as a percentage of assets on retirement accounts as the best way to ensure current and future retirees’ accounts would be safeguarded in a new “simple, open way to work that is intended to address these conflicts.”

Apparently, that’s changed.

Maybe Merrill had a change of heart because a U.S. Circuit Court threw out the Labor Department’s fiduciary rule in March.

Maybe they’ll have egg on their faces at Merrill if the SEC ends up looking like Labor’s fiduciary rule that just got burned – the SEC is already working on its own version of a “best-interest rule” that would apply to brokers.

Maybe not.

If not, that would be because the SEC is Wall Street’s lapdog regulator and isn’t about to ruffle feathers that were just plucked by a U.S. Circuit Court.

The Nature of the Fiduciary Rule

Here’s the truth about commissions in retirement accounts: they’re okay, if not sensible.

Many retirees want to trade. So do younger folks who have retirement accounts and can’t actively trade them because they’ll be put into fee-structure accounts that limit what they can do.

According to a person familiar with Merrill’s commission ban, “Clients have been frustrated by the commission ban. For retirement clients with traditional brokerage accounts, the posture meant either converting to a fee-based account, moving to the bank’s cheaper online offering, Merrill Edge, or leaving the firm.”

And according to the Wall Street Journal‘s breaking news story, Merrill brokers say, “… because fees that typically amount to roughly 1% of assets were costlier in some cases than commissions, brokers felt the shift left them at a competitive disadvantage since rivals continued to allow commission-based accounts.”

Fee-based accounts generate steady streams of fees for brokerages and as the Journal said, “… better jibe with a fiduciary model that puts clients’ interests first and minimizes conflicts of interest.”

The truth is the problem isn’t commissions in retirement accounts; it’s the nature of a fiduciary rule and the meaning of a fiduciary, as opposed to a “broker.”

A fiduciary has a legal obligation to put their clients’ interests above their own. Brokers, as in account executives at brokerages like Merrill, who used to be called brokers, don’t have the same fiduciary duty.

All that needs to happen is an across the board mandate that anyone handling anyone else’s retirement account, or any investment or trading account for that matter, must be a fiduciary and act in their client’s best interest.

If everybody was a fiduciary, commissions wouldn’t matter – because they’d have to be in the client’s best interest.

Case solved.

Before I go, I hate to be the bearer of more bad news… But there’s something else you should know.

Social Security audits exposed a 33-year-long pattern of mistakes, adding up for thousands of dollars unpaid to hardworking Americans.

You could be one of them.