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Commonwealth Sticks, Reluctantly, to No-Comms Stance

By Thomas Coyle March 15, 2017

While brokerage giant Merrill Lynch seems ready to waver, Commonwealth Financial Network is sticking to its no-commissions policy for retirement accounts in light of the incoming Department of Labor Conflict of Interest Rule.

In truth though, both outfits’ broadly similar stances on compliance are nuanced. And that can be said for any number of firms scrambling to adhere to a new regulation that’s set to take force in weeks but could be delayed, weakened or even shelved under a White House administration with laissez-faire tendencies.

Last week, Merrill chief Andy Sieg told his colleagues the firm “remains steadfast in its commitment to provide investment advice in our clients’ best interests, particularly with respect to their retirement accounts,” according to an internal memorandum Merrill’s corporate parent Bank of America shared with FA-IQ.

This is a reiteration of a policy Merrill aired in October 2016 in response to the DOL’s Conflict of Interest Rule.

The regulation requires advisors — even non-1940 Act advisors — to act as fiduciaries when it comes to retirement accounts. Among additional measures, the rule calls for a ban on commission-based trading in these accounts — except when the firm acquires a client’s written consent to the contrary.

Last October Merrill said it would adopt a no-exceptions policy in banning commissions from retirement accounts. But in last week’s memo, Sieg added a new wrinkle.

“As we’ve worked over the last year to meet the requirements of the DOL’s Conflict of Interest Rule, we’ve recognized that there may be limited situations in which a fee-based arrangement would not be in a client’s best interests,” Sieg writes. “We are reviewing those limited circumstances to consider potential alternatives.”

Merrill declines to say what potential alternatives it might use. It might, like Morgan Stanley plans to do when the DOL rule takes force, let advisors secure official permission from customers to charge commissions on given accounts rather than fees on assets under management. Or, like JPMorgan Chase, it might encourage clients better off with commissions to use its self-service platform.

Wayne Bloom

Meanwhile, Boston-based Commonwealth, an independent broker dealer that supports around 1,700 FAs, tells FA-IQ it will follow the no-commissions policy it delineated last fall.

“As it stands at the moment, the DOL rule is slated to become effective April 10, and we are proceeding with our plans to be in compliance,” says Commonwealth CEO Wayne Bloom. “Our decision to eliminate commission business in retirement accounts also stands.”

But Bloom adds a proviso he’s been putting out there for months. “Our decision to eliminate retirement commissions was primarily based on the rule’s enforcement policies, which rely on plaintiffs’ attorneys using the benefit of hindsight, along with class-action possibilities,” he says.

In other words, Commonwealth — whose advisors do very little commission-oriented business to begin with — doesn’t see charging for trades as a clear-cut conflict of interest between advisor and client. What’s got it spooked is the thought of DOL-fueled legal woes down the road.

If you doubt that, consider what Bloom says next: “If the rule is repealed or modified to eliminate plaintiffs’ counsel enforcement, we will continue to allow commission-based products in retirement accounts, and it will be investor-centric business as usual at Commonwealth.”

In this light — as further illustrated by Merrill’s willingness now to hedge its bets — there don’t seem to be any firm stances against commissions in the brokerage world. Rather, it seems there are only degrees of caution in the face of a new rule with an uncertain future.