(New York)

Back in late 2016, Merrill Lynch announced that it was abandoning commissions for its brokers. On the back of the shift to the DOL’s fiduciary rule, the firm was forcing clients to either move to fee-based accounts or downgrade to its Merrill Edge discount brokerage. Now, with the DOL rule gone, the firm is considering reversing that decision. Merrill admits that some clients left the firm because the cost of fee-based accounts was more expensive than commissions. Merrill will be considering a change for a 60-day review period.


FINSUM: Having only fee-based accounts always seemed like a bad idea to us because a large subset of customers would see their total fees rise significantly. However, the move fit nicely with the pre-DOL rule environment. Now that things have changed, we suspect the stance might be reversed.

Published in Wealth Management

(New York)

Think about the financial advisor as you conceive it: an entrepreneurial professional driven by an eat-what-you-kill paradigm. For decades that has been the model, but it appears to be changing quickly. In what Barron’s calls the rise of the “advisor zombie”, many advisors are being moved to basic salary and bonus models. Since firms are exiting the broker protocol, it is becoming easier for them to lock advisors in place, and thus constrain their pay, leaving more margin for firms. The model attempts to make clients loyal to firms rather than advisors, much like a branch banker.


FINSUM: This is certainly a dystopian viewpoint, but if you take a look at changes going on in the industry, it looks like a pretty reasonable view.

Published in Wealth Management

(New York)

Advisors pay attention. For the last two years, many firms, large and small, have been been moving their clients into fee-based accounts. This mostly started as a response to the fiduciary rule, but had the side benefit of driving more revenue for advisors. However, a new lawsuit against Edward Jones says that doing say may violate reverse churning rules. The case could expose all firms that have undertaken the same practice. Consumer Federation of America head Barbara Roper commented that “We have heard persistent reports that this is happening at a number of firms, and I have heard that from sources I consider reliable”.


FINSUM: This is a tough situation for firms. On the one hand you are being subjected to new rules and guidance saying fee-based accounts are better and safer, but because you are moving to such a model (many big brokers almost did away with commission based accounts), you are being subjected to claims of reverse churning. What a mess.

Published in Wealth Management
Wednesday, 07 February 2018 10:54

New SEC Fiduciary Rule Set for Autumn Debut

(Washington)

Advisors have been waiting with their fingers crossed in the hopes that the DOL rule might be done away with, and in its place, a new SEC rule installed. Well, it looks like a positive outcome might be on the cards. The SEC and DOL have been working on a joint rule for a few months and now it appears the new more harmonious fiduciary rule will debut this fall. Now the caveat to this news is that these are estimated dates based on various procedural deadlines, such as the DOL’s delay expiring in summer 2019, but experts in the space agree.


FINSUM: We think the SEC and DOL will debut a rule this fall for comment, probably in late fall, and then try to implement everything by July 2019. Stay tuned.

Published in Wealth Management

(New York)

Morgan Stanley’s wealth management can be described as nothing other than an unmitigated success in the fourth quarter. The numbers are in, and the data show that the unit is minting cash as the broker enjoys the transition from commission-based to fee-based accounts as provided by the fiduciary rule. Revenue increased a whopping 10% and the profit margin rose from under 10% the previous year to an eye-watering 26% in 2017.


FINSUM: We realize the importance of fiduciary duty, but how is a transition to much more expensive fee-based accounts—which are hugely boosting net profits to big firms—in the ultimate best interest of clients?

Published in Wealth Management
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