Merrill Lynch (BAC) and Morgan Stanley (MS) frequently go head to head in the wealth-management business, and they (of course) don’t always see eye to eye.

Morgan Stanley CEO James Gorman alluded to their divergent approaches to the new Department of Labor fiduciary rule on a call with equity analysts on Wednesday.

Gorman was asked specially if the firm’s approach would differ from a large competitor, i.e., Bank of America-Merrill Lynch, which recently said it does not plan to use the Best Interest Contract (or BIC) exemption and thus will not offer clients commission-based retirement accounts.

“Firstly, the team is going to be coming out, making some announcements, over the next couple of weeks, so … I won’t get ahead of them,” Gorman explained. “But I think it’s fair to say our firm view is that optimizing choice for our clients, giving them the choice of how they deal with the firm, services to access, how they pay for those services, is critical to how we operate as a firm.”

The firm takes its “regulatory constraints” seriously, the CEO says. “But the choice [between fee- and commission-based services] has been a fundamental sort of guiding light for the firm, and that is unlikely to change,” he added.

Profit Picture

When asked about the potential legal liability of keeping a commission-based retirement option, Gorman said, “I don’t think that giving clients choice heightens one’s legal exposure. In fact … that just seems a little counterintuitive.”

Such a strategy does mean that the firm has to “run a large complicated business, and we do it in full compliance with the regulatory rules,” Gorman explained. “And we try and optimize what’s always in the best interest of our clients, so that’s the basic principle.”

CFO Jonathan Pruzan indicated that Morgan Stanley had considered the legal and regulatory costs of using the BIC exemption and giving clients a commission-based option in its financial projections.

“Obviously, there were drafts of the DOL rule out last year, so we were informed when we gave you the 23% to 25% margin target,” for the wealth-management unit, Pruzan explained during the call.

The wirehouse thinks this approach to DOL “is going to be manageable both from our clients’ perspective and from a results perspective,” the CFO says. “And we’re going to work with our clients to make sure that we are providing compliant solutions.”

Last week, UBS equity analyst Brennan Hawken wrote in a not that while BofA-Merrill’s approach “might reduce legal liability, it may also create an opportunity for competitors to attract [advisors] … who would rather use the BIC to allow for greater flexibility in their business.”