Merrill Mistake

For a brief in this issue’s industry notes we spoke with some area brokers to get their reaction to a federal court’s ruling that stopped all use of fee-based brokerage accounts by Oct. 1.

The ruling didn’t seem to ruffle any feathers and many brokers said it wasn’t big news to them because they never offered the accounts.

But prior to the Oct. 1 deadline financial publications such as the Wall Street Journal and InvestmentNews printed articles that portrayed the change as a major blow to the industry. The articles all pointed to Merrill Lynch & Co. as the industry leader in fee-based accounts with nearly $108 billion in fee-based brokerage assets.

But company reps denied comments in all the articles we accessed and it sounds like there was good reason.

A few area brokers were able to tune us into the real story behind Merrill-Lynch’s dislike for the ruling. Some company brokers were using the rule to side step their fiduciary responsibility to clients and sell clients shares of stocks that the company already owned.

The practice amounted to double dipping because the brokers could sell the shares a higher-than-market-value price and receive an annual profit from the account.

Many brokers called the practice unethical and we have to agree.