Thank You, Merrill Lynch

Ted

FYI: (This is a follow-up article)
Every financial advisor in the country has been debating the Department of Labor's new fiduciary rule, arguing about whether or not it's really good for investors. For my part, I’m on the record here and here saying that the rule -- which requires brokers who work with retirement accounts to put their clients’ financial interests ahead of their own -- is a boon for investors.
Regards,
Ted
https://www.bloomberg.com/gadfly/articles/2016-10-11/thank-you-merrill-lynch

msf

Did I read that right? That because of the new rule, Edward Jones won't sell mutual funds in commission-based accounts, but will continue to sell VAs? And that they won't sell ETFs but they will sell stocks? I wonder whether they'll sell REOCs but not REITs.

[ It's harder to sell VAs under the new rules than it is to sell load funds, largely because their fees are higher to compensate for the more difficult sales task. ]

Talk about cutting off one's nose to spite one's face. I think my head is about to explode.

davidrmoran

gah, must investigate effect on ML accounts (retirement and nonretirement brokerage) currently w/ zero fees / commissions.

msf

Merrill Edge isn't affected - no advice provided.

From a column I linked to in another thread:

"Merrill plans to encourage its retirement clients to consult with their advisor about whether to move their brokerage IRA accounts to Merrill Lynch One [wrap account] ... adding that another alternative for investors is the brokerage’s self-directed and guided investing channels offered via Merrill Edge."

http://www.thinkadvisor.com/2016/10/07/dol-fiduciary-rule-forces-merrill-to-drop-commissi

hank

A couple great threads on the new DOL rules. (I'm still struggling to fully digest the longer one.)

As a practical matter, I wonder (but don't know) how many regular readers here will be impacted by the changes. Suspect most who come here tend to be older self-directed investors relying largely on no-load ETFs or mutual funds. Many, it seems, do use broker-sponsored online portfolio design services (probably the wrong term). But I'd guess fewer than 10% are paying a human for advice at this point in their investing life.

There are some here who are financial advisors or pseudo-advisors. For them the ramifications are very real. I commiserate with anyone forced to deal with higher paperwork loads, face increased litigation, or jump through unnecessary hoops.

davidrmoran

msf, tnx x n

hank

I stand corrected. As the other thread points out, "Robo-Advisors" are also included under the DOL rules. Yikes. If I use an allocation tool at a fund house for ideas about how I should be allocated at my age and it steers me into higher expense funds, than I suppose that could constitute a conflict. Sounds like a real (legal) mess. Lots of potential employment for the legal profession.

BobC

Oh, yeah. And remember the 1,000+ pages of the new regs were crafted by....you guessed it...attorneys! Yes, the rules are supposed to establish a "fiduciary" standard. But already, there is legislation to allow annuities back into the picture (think dollars from insurance companies and banks). And the solution for a number of companies, like ML, is to adjust their IRA business but continue to sell commission products and charge commissions for the non-retirement business. There will for sure be some fallout of the really egregious stuff, but I would not be surprised to see more and more adjustments to the rules like the annuity provision just passed. Meanwhile, independent RIA's who have been running fiduciary programs for years, must devote more and more hours to paperwork and other documentation. Between the DOL, the SEC, FINRA, and each state's regulators, the rules and requirements continue to multiply, many times contradicting each other.

AndyJ

Yes, seems likely the predation will pick up several notches on the non-retirement side to make up for the losses on the retirement side.

msf

See my separate thread on RESA. There already was a DOL safe harbor rule from 2008 for employer-offered annuities.

The new DOL rule didn't touch that. If an employer follows the 2008 safe harbor rule for offering annuities, then it has by definition met its fiduciary responsibilities.

Whom would you want to write laws? Real estate developers? (Do I really want to go there?) Just as I want an engineer and not a philosopher to design my bridges, I want transactional lawyers involved in designing a regulatory system.

That's what they're trained to do - design legal frameworks that can actually work. I also want domain experts - actuaries, CPAs, etc. in the case of annuities.

fundalarm

@BobC: I think that while the retirement accounts are the only ones currently affected, the changes will go through the entire brokerage/advisory business model forcing many commissioned advisers leave the industry/ retire.