Wells Fargo, Others Mark Time on IRA Marching Orders to Brokers
Wells Fargo has not yet decided whether to follow Merrill Lynch’s lead in prohibiting its 15,000 brokers from charging commissions for individual retirement accounts, the bank’s chief financial officer said Friday.
Merrill created consternation as well as admiration last week with its announcement that it will not take advantage of the Department of Labor’s “best-interest contract exemption” that would allow brokers to charge commissions for retirement accounts when the new DOL fiduciary rule becomes effective on April 10. The extensive record-keeping, compliance and potential litigation costs of using the exemption tilted Merrill’s decision, consultants said.
The Bank of America-owned brokerage also has the luxury of being such a large firm that it can refer clients who cannot afford its fee-based advisory account services to its parent’s no-frills Merrill Edge unit, which is introducing an advisory program charging .45% of account assets. Merrill’s advisory platform generally charges 1.2% of assets and higher, though the new rule requires fees to be reasonable.
Wells, which with more than 15,000 brokers has a salesforce even larger than Merrill’s, refused to show its hand when asked about its DOL fiduciary-rule plans during its first earnings conference call since the eruption of its cross-marketing scandal in September.
“We are still in the process of refining the overall implementation approach of complying with the rules,” Wells Chief Financial Officer John Shrewsberry said when asked if the bank would follow its rival’s approach. “We haven’t reached the same conclusion in the same timeframe as the competitor you are referring to.”
While many brokers at Merrill are upset at the work ahead of them in converting clients from commission to fee-based accounts, at having to qualify for new internal retirement account designations and at having to give up some accounts, several consultants said Merrill did them a favor by laying out its policies.
“Brokers are frustrated about not having information on how to proceed,” said David Donaldson, chief executive of the plan sponsor training firm ERISA Smart who was a former Morgan Stanley broker and a DOL investigator. “Firms are still waiting for more DOL guidance and I don’t think they’re going to get. They need to step up and let advisors know what they’re thinking.”
Brokers at Morgan Stanley, UBS, RBC Wealth Management and several other rivals have said their managers have given them informal assurances that they will continue to have choices in offering fee-based or commission-based retirement accounts, but some believe that the push will move heavily toward the fee-only side.
Executives at investment companies that have traditionally paid commissions and other sales incentives to advisors to sell their mutual funds, annuities and other retirement account products said that most brokerage and advisory firms are trying to steer a middle course as they nail down details of their agreements with product “manufacturers.”
“We are seeing that the vast majority of our (distribution) partners are going to be offering choice,” said Richard Aneser, chief marketing officer of Lincoln Financial Distributors, the annuity sales arm of Radnor, Pa-based life insurance firm Lincoln Financial Group that sells through independent brokers and other firms. “Commissions can be more cost-effective for long-term holders and the DOL has acknowledged that (with the BIC exemption).”
Wells’ Shrewsberry said the bank will continue encouraging Wells Fargo Advisors’ customers to work with brokers on a “customized plan that guides their investment activities,” a reference to the Envision financial plan that Wells has long incentivized brokers to prepare.
Wells, however, also is preparing a low-cost “broker-lite” option like the one Merrill has at its parent bank’s Edge affiliate. “Certain clients will have self-directed options,” Shrewsberry said, an apparent reference to an automated robo-advisory platform that Wells executives have said would be implemented early next year.
UBS Financial Services has teamed up with robo advisor SigFig to offer such an alternative and Morgan Stanley has said that it is working on an in-house robo product.