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Wells Fargo Will Keep Commission-Based IRAs

By Murray ColemanAlex Padalka December 2, 2016

Wells Fargo is the latest brokerage firm to announce it will continue offering commission-based individual retirement accounts regardless of what happens to the Department of Labor’s fiduciary rule, according to an internal memo sent to FA-IQ.

The company tells its advisors that it’s preparing for “many different scenarios” with regards to the new rule, which requires retirement account brokers to put clients’ interests first and is scheduled to go into effect in April.

Despite “speculation in the media” on the fate of the rule under President-elect Donald Trump, Wells Fargo wrote it is going ahead with plans for the rule’s implementation, according to the memo. Regardless of the outcome, the firm says it would rather leave the option between fee-based and commission-based accounts up to its customers.

Wells Fargo’s commission-based IRAs will be offered under the best interest contract exemption, which allows brokers to sell some commission-based investment products after signing a best-interest contract with their clients.

But the rule’s survival is in doubt if some beltway lawmakers have their way. Most recently, a top GOP Senator called for a repeal of the rule, arguing that Trump would overturn it.

The president-elect, however, has yet to take a stance on the rule, although one of his advisors and now a member of his transition team have said that the rule should go. But it’s unclear whether that will be the case, as reported previously.

Several firms, including Capital One, Merrill Lynch and Commonwealth Financial Network have already decided to bar commission-based retirement accounts in light of the rule to reduce potential conflicts of interests among their brokers, although Commonwealth has hinted it may reverse that decision if the rule is repealed. JPMorgan also announced plans last month that its retirement account clients will have to transition to fee-based accounts or opt for an online self-guided platform.

Meanwhile, Ameriprise, Cetera, Morgan Stanley and Raymond James have decided to keep commission-based IRAs, arguing, like Wells Fargo, they prefer to leave the choice up to their clients and advisors.

The DOL rule also faces legal challenges by way of lawsuits from several industry groups, but has scored two victories.

Most recently, Judge Daniel Crabtree in the District of Kansas rejected a request for a preliminary injunction against the rule from an insurer. In early November, U.S. District Judge Randolph Moss denied a request from the National Association for Fixed Annuities to delay the rule’s implementation.

Michael Eddy, who used to practice as part of Wells Fargo’s independent network – FiNet – believes letting advisors keep selling commission-based products in IRAs could drive some advisors away.

The Norcross, Ga.-based FA left the Wells Fargo fold last year to form Berkeley Capital Partners, which now manages more than $450 million.

“Regardless of what happens with the DOL rule, commissions are a conflict of interest,” Eddy says. “I don’t ever want to be anywhere near the commission-based business again.”

Even as a FiNet affiliate, he found that some clients who were used to working with a bank resisted fee-based relationships. At the same time, Eddy points out he didn’t actively solicit any commission-type of business and steered clear of annuities and funds with sales loads.

“That’s the primary reason we made a change to Schwab’s network – to take an even firmer stance on the importance of acting as a true fiduciary for our clients," he says.