Merrill Lynch (now Merrill)

 
Merrill Lynch is an investing and wealth management firm under the wing (parent organization) of Bank of America. The company was first founded by Charles Merrill in 1914 in New York, New York. Currently the firm has 14, 796 financial advisors with an annual revenues of $15.9 billion. The firm has a variety of divisions:

• Merrill Lynch Wealth Management
• Merrill Private Wealth Management
• Merrill Guided Investing
• Merrill Edge

Merrill started out as Merrill Lynch & Co., Inc. that traded on the NYSE as MER. Merrill Lynch was acquired by the Bank of America in 2008. Merrill Lynch & Co., merged into the Bank of America Corp in 2013. Some Bank of America subsidiaries carried the Merrill Lynch name (including broker/dealer Merrill Lynch, Pierce, Fenner & Smith). The Bank of America re-branded the unit to Merrill in 2019.

Investors Who Lost Money In The Harvest Volatility Management Strategy Offered Through Merrill Lynch Or Morgan Stanley Have Recovery Options

The Harvest Volatility Management Strategy is an options strategy that was utilized by several brokerage firms, including Merrill Lynch and Morgan Stanley, as a safe method to generate supplemental portfolio income.  The Harvest Volatility Management Strategy involves the use of an “Iron Condor” options strategy, which entails selling both near-the money and out-of-the money put and call options against the S&P 500 index, NASDAQ and other primary indices.  In a stabilized market environment, some or all of the options will expire and the investor collects the premiums.  Conversely, in a volatile market, the premiums associated with the options positions will spike, creating internal margin calls and/or the exercise of the underlying options, or both. 

In today’s current interest rate environment, it has been difficult for investors to identify short-term, fixed income investments that generate a stable, predictable income stream.  In the absence of such opportunities, many Merrill Lynch and Morgan Stanley Financial Advisors pitched the Harvest Volatility Management Strategy as a safe method to generate portfolio income.  Merrill Lynch and Morgan Stanley Financial Advisors represented to customers that the strategy was properly hedged such that even if there were market movements, the investor’s principal was protected.  In other words, the Harvest Volatility Management Strategy was represented to be a relatively conservative investment strategy.

The premium value of an option is determined by (1) time (i.e., maturity) and the (2) strike price.  If the option has a shorter maturity, there is theoretically less time for an investor to navigate short-term volatility, leading to more pronounced swings in the market value of the option.  Conversely, if the option has a longer maturity and the options are further out-of-the-money, short-term volatility may not cause significant changes in the market value of the option. 

In 2018, the financial markets experienced extreme volatility.  In January 2018, the S&P 500 was at 2,800.  Throughout 2018, there were violent fluctuations in the S&P 500, which reached highs of 2,929 and a low of 2,350.  The most volatile period was between October and December 2018 during which the market declined 20% followed by a rebound of 12% through January 2019.  These violent swings caused the premiums of both the put and call side of the iron condor strategy to spike, leading to losses on both sides of the trade. 

The Harvest Volatility Management Strategy involves the use of an “Iron Condor” options strategy, which entails selling both near-the money and out-of-the money put and call options against the S&P 500 index.  In a stabilized market environment, some or all of the options will expire and the investor collects the premiums. 

Conversely, in a volatile market, the options get exercised.  If the options get exercised and the strategy is not properly hedged, investors may experience substantial portfolio losses.  In addition, because the iron condor strategy involves leveraged, short option positions, the losses become amplified. 

Financial advisors have a legal and regulatory obligation to recommend only suitable investments that are appropriate for their clients’ needs and objectives. Their employing brokerage firm has a legal and regulatory obligation to supervise the Financial Advisors’ sales practices and dealings with clients.  To the extent any of these duties are breached, the customer may be entitled to a recovery of his or her investment losses.

See Merrill Lynch (Now Merrill) Individual Broker Complaints by following the links below:

– Merrill Lynch Financial Advisor, Robert Gerstein, Has Four Customer Complaint Disclosures
– INVESTOR ALERT—Merrill Lynch Broker, Hector Gonzalez, Has Pending Customer Complaints, Totaling $16 Million

The Wolper Law Firm, P.A. represents investors nationwide in securities litigation and arbitration on a contingency fee basis.  Matt Wolper, the Managing Principal of the Wolper Law Firm, P.A., is a trial lawyer who has handled hundreds of securities cases during his career involving a wide range of products, strategies and securities.  Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters.  We can be reached at 800.931.8452 or by email at mwolper@wolperlawfirm.com.

SEC Sanctions Multiple Brokerage Firms Over Text Messaging And WhatsApp

BofA Securities, Inc. and Merrill Lynch, Pierce, Fenner & Smith Inc. — “From at least January 2018 to September 2021, BAML employees sent and received off-channel communications that related to the business of the broker-dealers operated by BAML. Respondents did not maintain or preserve the substantial majority of these written communications. Respondents’ failures were firm-wide, and involved employees at all levels of authority. As a result, Respondents violated Section 17(a) of the Exchange Act and Rule 17a-4(b)(4) thereunder.” For a copy of the SEC sanction, click here

Full list of SEC Sanctions over Text Messaging and WhatsApp here.