Merrill Lynch

Merrill Lynch (CRD: 7691) is a giant in the securities industry. It is registered as both a brokerage firm and an investment advisory firm. Investors who lost money working with a Merrill Lynch broker may be at a loss for what to do next. Our securities attorneys can advise on what steps to take to hold the firm responsible for broker misconduct.

Since registering with the SEC in 1959, Merrill Lynch has racked up over 1,400 disclosures on its BrokerCheck record. These were handed down by the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and state regulators. Investors should also be aware that many Merrill Lynch representatives also have records of alleged misconduct.

Regulatory Actions & Fines

These are only the most recent regulatory actions, from 2022 through 2023. For a complete list, visit the firm’s detailed BrokerCheck record.

The SEC and FINRA Fine Merrill Lynch $12 Million Over Suspicious Activity Reports (SARS)

According to allegations filed by both the SEC and FINRA on July 11, 2023, Merrill Lynch failed to file required Suspicious Activity Reports. The firm allegedly had reason to believe certain transactions facilitated criminal activity. The Bank Secrecy Act requires firms to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities.

According to the SEC’s allegations, Merrill Lynch’s parent company Bank of America used a $25,000 threshold for reporting suspicious activity instead of the required $5,000 threshold. The suspect activity concerned customers who were victims of unauthorized debit card withdrawals, forged or altered checks, account intrusions, identity theft, and/or phone or internet scams.

FINRA and the SEC fined Merrill Lynch $6,000,000 each, for a total of $12 million in fines.

New Hampshire State Bureau of Securities Regulation

New Hampshire fined Merrill Lynch $650,000 following allegations that the firm failed to pre-screen unsolicited telemarketing calls for numbers on the Do Not Call list.

FINRA also fined Merrill Lynch $700,000 for the same allegations.

Alleged Failure to Disclose Production Credit Fee for Wrap Accounts

On April 3, 2023, the SEC alleged that Merrill Lynch failed to disclose a fee called a “production credit” associated with wrap accounts. These undisclosed fees allegedly totaled approximately $4.1 million across 4,874 advisory accounts.

The SEC ordered the firm to repay customers $4.1 million in addition to prejudgment interest of $760,104.

Failure to Preserve Personal Text Messages

On September 27, 2022, the SEC alleged that employees communicated both internally and externally by personal text messages from at least January 2018 to September 2021 and did not subsequently preserve the communications as required by regulatory rules.

The SEC fined the firm $125,000,000.

Merrill Lynch Repays Customers $13.4 Million

On May 3, 2022, Merrill Lynch entered into an Acceptance, Waiver, and Consent agreement in which he consented to the findings that the firm failed to adequately supervise representatives, who allegedly recommended unsuitably expensive mutual funds.

FINRA alleges that as a result, Merrill Lynch customers paid $13.4 million in excess sales charges and fees.

Due to Merrill Lynch’s “extraordinary cooperation,” the regulator did not impose a monetary fine.

Brokerage Accounts and Advisory Accounts

Merrill Lynch offers brokerage accounts, advisory accounts, and self-directed trading. Advisory accounts come with a financial advisor who makes recommendations and has a fiduciary duty to honor the client’s best interests.

Brokerage accounts may not offer the same ongoing monitoring as an advisory account. Brokers may recommend investments but may not always be fiduciaries. They are required to adhere to rules set forth by Regulation Best Interest and FINRA Rule 2111.

Brokerage Account Fees and Conflicts of Interest

If you enlist Merrill Lynch brokerage services, make sure you understand what fees you will pay and how those fees may create a conflict of interest. Merrill Lynch states in its Customer Relationship Summary: “You should discuss with a financial advisor the fees and costs that you will pay for particular transactions in your account and for holding certain types of securities.”

For brokerage services, brokers are paid based on commissions and transaction fees. Advisors may receive compensation for referrals. Certain products offer higher commissions for brokers and advisors than others. Make sure that you know what type of financial advisor you are working with, as well as their conflicts of interest.

Additionally, investors should note that advisors can discount or waive sales charges at their discretion. Your financial professional, however, is not obligated to offer these waivers and discounts. Ask about discounts and waivers before agreeing to an investment.

• Equity and Debt (Preferred Securities, Closed-End Funds, and Fixed-Income Securities) do not typically come with a fee for the customer but offer Merrill Lynch an underwriting discount which the firm passes on to Advisors for compensation.
• Annuities come with “trailing” or ongoing fee payments for the broker. Investors also pay fees directly to the issuing insurance company.
• Advisors have an incentive to rollover assets from a 401(k) plan or a retirement account at another firm to an Individual Retirement Account (IRA) at Merrill. These rollovers may help advisors reach performance goals.
• Exchange funds come with a sales charge which is included in your subscription amount. If you redeem units within three years of subscription, you will pay an early redemption fee.
• Hedge funds, private equity funds, and non-traded REITs come with one-time placement fees.
• Money-market funds feature annual, asset-based administrative fees that are paid to Merrill Lynch.
• Mutual fund shares may come with sales charges, early redemption fees, and 12(b)-1 fees, which are ongoing fees paid to the firm.
• Options overlay strategies feature different types of fees and charges, including a transaction fee. See the full list of fees and charges in the Form CRS “Indirect Fees and Charges” section.
• Listed options contracts pay commissions based on the principal investment value as well as the number of options sold.
• Unit Investment Trust offering prices include a sales charge.
• Market-Linked Investments come with charges called “markups.” Advisors receive a portion of these markups.
• Hedge funds and private equity funds come with administrative fees paid to the firm.
• Margin accounts charge interest on the loans to customers.

Potential Conflicts of Interest

Merrill Lynch only recommends products for which the firm receives compensation. Financial advisors receive payment based on the revenue they generate for Merrill Lynch, so they are more likely to recommend products that generate revenue for the firm.

• The more trades you make in your account, the more transaction fees the firm will earn.
• Your financial advisor may have a financial incentive to recommend a brokerage account over an investor advisory account. Make sure you know how they are being compensated.
• Advisors also receive compensation awards based on the growth of investor assets based on investment activity in certain products, including money market funds, 529 Plans, annuities, and/or life insurance.
• Advisors have a financial incentive to recommend that you move your accounts from a different firm to Merrill Lynch.

These are just some of the conflicts of interest disclosed in the Form CRS. Carefully review the Form CRS and make sure to discuss conflicts of interest with your Merrill Lynch representative.

Broker – Investor Disputes

Merrill Lynch works with brokers who have records of investor disputes. If you want to review your broker’s record and possible investor disputes, ask for their Broker CRD number and look them up on BrokerCheck, a public database maintained by FINRA.

Here are a few recent examples.

• One Merrill Lynch broker faces allegations of unauthorized trading.
• In a six-figure dispute, an investor accused a broker of misrepresentation.
• A Merrill Lynch broker with several investor disputes on their record is facing a $782,500 investor dispute alleging unsuitable investment recommendations.
• One Merrill Lynch broker is facing criminal charges of healthcare fraud.
• Another broker is facing allegations of commission abuse.

This is only a small selection of recent disputes. If you lost money after working with a Merrill Lynch broker, reach out to a securities attorney.

What Can I Do If I Lost Money Working with a Merrill Lynch Broker?

Merrill Lynch is a large financial institution with a long record of regulatory disputes and broker misconduct. They are no stranger to disputes with investors. Consider speaking with a securities attorney for expert advice on recovering losses from a major brokerage firm. Investment contracts typically require investors to pursue damages using a process called FINRA arbitration, which is different from suing in civil court. To speak with a securities attorney, call (877) 600-0098 or email info @kurtalawfirm.com.