Morgan Stanley Keeps Commission Retirement Accounts, Despite DOL Rule
November 1, 2016 by ThinkAdvisor
Morgan Stanley (MS) says its 15,850 advisors will be giving their clients the option of having fee- or commission-based retirement accounts in 2017, after the new Department of Labor fiduciary rule goes into effect.
The official announcement comes one week after CEO James Gorman alluded to this decision during a call with equity analysts. “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,” he explained.
The wirehouse said in a press release that clients who “prefer transaction-based pricing will continue to have access to retirement brokerage accounts and receive advice that complies with the DOL fiduciary rule and Best Interest Contract Exemption (BICE).”
At the same time, investors who would rather have fee-based retirement accounts “will continue to have access to the firm’s world-class investment advisory offerings.” Morgan Stanley says it has some $850 billion in retirement and non-retirement assets held in fee-based accounts.
“Client needs vary by their individual situations, and they tell us they want choice in how they pay for services. We believe our advisors can most effectively uphold a fiduciary standard of care and work in clients’ best interests by continuing to offer choice,” explained Shelley O’Connor and Andy Saperstein, co-heads of wealth management, in a statement.
Merrill’s Approach
This dual strategy to the DOL rule stands in marked contrast to the Bank of America-Merrill Lynch (BAC) move to abandon commission-based retirement accounts in April 2017, which it announced earlier this month.
Merrill Lynch will encourage retirement clients to speak with their advisors about options, such as moving their brokerage IRA accounts to Merrill Lynch One, the BD’s Investment Advisory Program, or Merrill Edge, the self-directed online platform.
The Morgan Stanley rival also explained that “legacy retirement assets” in Merrill IRA brokerage accounts before April 10 “can remain in that account,” given the grandfather provisions of the DOL rule. However, as of Apri 10, no new assets can be added to these accounts.
Merrill says that it will not use the Best Interest Contract exemption “to service or support ongoing IRA brokerage account activity.” However, “when appropriate, we will use this exemption to recommend enrollments in our Investment Advisory Program from a retirement client’s IRA brokerage accounts, or rollovers from ERISA 401(k) plans.”
After an account is enrolled in our Investment Advisory Program, or a Merrill Edge self-directed or guided investment advisory account, there is no longer a need to use the BIC exemption, it says.
However, UBS equity analysts have told investors that Merrill’s approach “might reduce legal liability … [but] may also create an opportunity for competitors to attract [advisors].”
(Melanie Waddell contributed to this report.)
