Merrill Lynch is one of the largest financial services companies in the world, with over US$2 trillion in assets under management. In a recent interview, CEO David Moffett said that he would be open to investing in cannabis-related businesses as long as they were legal and didn’t violate any laws.
One of the first things Merrill Lynch Wealth Management executives addressed as part of their Project Thunder effort was revisiting the firm’s approach to customers with marijuana-related companies. The initiative, which began last week, aims to alleviate the brokerage’s financial advisers’ concerns and pain points.
According to an internal letter sent to Merrill advisers on Wednesday, Merrill officials revealed plans for “streamlining” and providing more “flexibility” to the process of onboarding customers who own or invest in marijuana-related companies as part of the new effort.
Advisors will be allowed to request permission for clients with marijuana-related companies at the divisional level in “lower risk situations,” according to the letter, which means they will no longer need the approval of a New York-based executive. According to the firm, the policy adjustment gives customers more freedom if marijuana-related companies account for a modest portion of their total net worth.
The internal communication was verified by a Merrill spokeswoman, who also mentioned two additional Project Thunder “wins”: plans for local recognition events in 2022 and more than “50 million views” of the Merrill brand in NFL stadiums, digital platforms, and other places starting this month.
By press time, the spokesman had not provided any further information regarding the announced adjustments.
When Project Thunder was announced last week, Merrill President Andy Sieg said in an emailed statement, “Through this effort, we’ve begun introducing what will be dozens of improvements in key areas, including making it easier to do business; product and platform enhancements; success and culture; and celebrating Merrill and all that it represents through increased visibility.”
According to Alma Angotti, a partner with the compliance consulting firm Guidehouse, onboarding clients with marijuana-related businesses and investments has remained a sticking point at many brokerages due to the lack of uniformity among states and the federal government regarding recreational marijuana use and sales.
Although some states, including California, have legalized marijuana for recreational adult use, the federal ban remains in place, so brokerages have imposed restrictions on prospective clients who have investments in the industry to avoid handling assets derived from criminal activity, she explained.
“Under federal law, any profits connected to the sale of marijuana are technically proceeds of crime, which means they are susceptible to forfeiture and seizure, and you may be charged of money laundering,” Angotti said.
According to Angotti, the federal government has not consistently adopted a policy broadly defining proceeds related to the sale of marijuana because the Obama administration stated that it had no plans to enforce any broad definition of marijuana-related businesses or prosecute banks or brokerages for “laundering” their funds, but then reversed its position.
The regulatory responsibilities of brokerages are difficult to identify without greater clarification from the federal government, according to Angotti. Will customers “fund a strip mall that will be renting to a marijuana shop or make insurance payments for marijuana-related companies,” she asked, and will the profits be regulated by federal regulations rendering them illegal?
Although the explanations are unclear, Merrill management may have decided before to publicizing their new policy that they had enough expertise to make more simplified decisions, Angotti said, based on the kinds of potential customers and companies that advisers have lately sought to join.
Merrill Lynch executives announced Project Thunder on August 25, informing advisers that they will make 24 adjustments over the next eight weeks depending on their input. Some trainees will be eligible to join teams immediately, the 24-hour trading restriction will be modified, and alternative investments will be included in a personal wealth analysis tool.
In reaction to the improvements revealed this week, one experienced Merrill adviser in Florida, who did not want to be identified, responded, “All nice things but not monumental.”
One former Merrill recruiter, who did not want to be identified, described the firm’s marijuana policy change as “something that must be a huge issue to a few individuals, but just a few people.”
More advisors are expected to appreciate the brokerage’s intention to organize local appreciation events in 2022, according to the recruiter, who are weary of the distant environment established by Covid-19.
Merrill Lynch slammed the door on a long-standing industry practice of enabling mutual fund, annuity, and other product salesmen to treat their brokers and clients with gifts, entertainment, or financing for business meetings when it did so last year. According to an internal document at the time, the company wanted to prevent “even the appearance of a conflict of interest” in its dealings with third parties.
Merrill brokers are urged to give input to management, branch and market leaders, as well as peer networking groups, while Project Thunder is in progress.
The campaign began less than two months after Sieg admitted in an internal presentation that the firm’s leadership was focused on competitive attrition, which had risen to 5% from 4% in the previous quarter. (Executives at Morgan Stanley, a competitor wirehouse, boasted of an attrition rate of less than 2%.)
The total number of Bank of America advisers, which includes thousands of bank-based Edge advisors and private bankers in addition to the core Merrill staff, fell 5.9% year over year to 19,358.