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Bull in a China Shop

Michael Wursthorn of the Wall Street Journal reports (paywall) that Merrill Lynch is the cutting maximum advisory fee for its "smallest", i.e. sub-$1 million, customers:

Merrill Lynch is cutting account fees by about 20% for some customers who pay for advice, as the brokerage industry continues to put more emphasis on charging investors level fees versus commissions. [...]

For clients who are just under $1 million in assets with Merrill and pay a fee based on a percentage of assets, the change would shave nearly $5,000 in annual investment costs and lower their maximum fee to 2.2% from 2.7%. Some clients may already be paying less since Merrill allows their brokers to negotiate fees, a spokesman added.

The spokesman said the fee cut was part of a broader overhaul of Merrill’s investment advisory program, which began in the second half of last year. Merrill had already rolled out new account statements that more plainly state the fees clients pay.

Merrill and other major U.S. brokerages have been pushing their brokers to act more along the lines of a personal chief financial officer for clients, providing advice, financial planning and banking services for a fee based on a percentage of assets, and away from the traditional model of charging commissions by the transaction.

Another sign of the pressure that broker-dealers are facing pressure from fiduciaries, i.e. registered investment advisers (RIAs). Regardless of whether the Department of Labor's Fiduciary Rule goes into effect as originally planned on April 10, 2017, the public's growing awareness of the difference between the broker-dealers' suitability standard and the RIA's fiduciary standard is forcing broker-dealers to become more customer friendly — replacing commissions with percentage of asset fees, lower advisory fees, and less expensive funds.

But Merrill Lynch still has a long way to go. Taking a $27,000 annual advisory fee down to $22,000 on a $1 million account is progress, but it's still highway robbery. For some perspective, AlphaGlider manages a $1 million account for only $4,500 annually.