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Brokers Brace for Tomorrow’s DOL Fiduciary Rule Rollout

April 5, 2016

The Office of Management and Budget announced Sunday that it has finalized its review of the Department of Labor’s proposed fiduciary rule designed to force retirement brokers to put client interests first, InvestmentNews writes.

This sets the stage for tomorrow’s much-anticipated release of the rule by Sen. Elizabeth Warren, D-Mass., and Labor Secretary Thomas Perez, as reported previously, with the DOL expected to post the rule on its website on Friday, according to the Wall Street Journal.

The rule, which many critics warn will make financial advice unaffordable for many low and middle-income savers, may be scaled back significantly in the next presidential administration or killed in the courts, Financial Advisor magazine writes.

But many broker-dealers have been preparing for the rule nonetheless, according to the publication.

Many firms have been gearing up for months to switch commission-based accounts, which are still allowed under the rule but will require more paperwork, to fee-based accounts.

Cetera Financial Group has rolled out a new retirement portal for the registered representatives on its network, while LPL is lowering minimums on fee-based accounts, as reported previously.

But some broker-dealers as well as their registered representatives will likely have to consolidate, according to Financial Advisor magazine. Smaller firms may not have the technology to support the additional documentation necessitated by the rule, according to Seeking Alpha, and fee-based accounts may also not be profitable for smaller clients that some small firms currently work with.

Big brokerages, however, have been preparing for the rule’s rollout for months, the Journal reports. Merrill Lynch has sent its more than 14,000 brokers breakdowns of the individual retirement accounts on their books, detailing securities subject to commissions, people familiar with the situation tell the Journal.

Former Labor Secretary Thomas Perez (Getty)

The information is expected to be used for moving clients out of transactions-based accounts, according to the publication, and other brokerages are expected to make steps in the same direction. UBS has been educating its brokers on their fiduciary responsibilities, while Morgan Stanley has been weighing options to communicate the rule to its clients, people familiar with the matter tell the Journal.

At Merrill Lynch most brokers will likely see an increase in revenue from a fee-based relationship, one Merrill advisor tells the publication. Fee-based accounts can bring up to 60% more revenue than commission-based accounts and the rule is expected to generate an extra $13 billion in revenue annually, according to Morningstar research cited by the Journal.

But not all clients are expected to benefit from the rule.

To investors who don’t require frequent trading or hand-holding, and for whom a fee-based retirement account could end up costing more, Merrill is offering its Merrill Edge platform, launched in 2010 to managed smaller accounts with a limited selection of products and limited advice through call centers and branches, the Journal writes.

Some clients may have to move brokerages, according to the publication, and these types of conversations will occur across the U.S. And neither Morgan Stanley, Wells Fargo nor UBS have similar online alternatives, the Journal writes.

By Alex Padalka
  • To read the Seeking Alpha article cited in this story, click here.
  • To read the FA MAgazine article cited in this story, click here.
  • To read the InvestmentNews article cited in this story, click here.
  • To read the Wall Street Journal article cited in this story, click here.