LPL to roll out new mutual fund platform as DOL fiduciary rule takes effect

Broker-dealer hasn't yet determined whether the platform will be mandatory when it launches next year, given the fluid regulatory environment

Jul 13, 2017 @ 1:38 pm

By Greg Iacurci

LPL Financial announced Thursday it plans to roll out a new mutual fund platform to advisers early next year to eliminate perceived conflicts of interest in compensation as the Labor Department's fiduciary rule is set to take full effect.

LPL, the largest independent broker-dealer in the U.S., told its 14,000 financial advisers the Mutual Fund Only platform would standardize their upfront and trailing compensation for mutual fund sales, and slightly reduce the number of fund families available to clients.

Advisers will receive a 3.5% one-time upfront commission for onboarding a client, who is then free to transfer funds in and out of 1,500 mutual funds across 20 asset management firms without incurring additional upfront sales charges. Advisers will receive a 0.25% annual trailing commission regardless of the subsequent fund selection.

Clients who currently hold positions in the eligible mutual funds can avoid the onboarding commission if they transfer their positions to an MFO account.

The fund families selected for the new platform represent about 80% of LPL's brokerage mutual fund business, according to an adviser memo from LPL received by InvestmentNews.

The memo also indicated LPL will standardize its compensation within equity, exchange-traded-product and fixed-income categories, but didn't provide details. The firm already has tweaked pricing for some other investment products such as fixed and variable annuities and unit investment trusts.

LPL's move addresses one of the compliance requirements of a DOL regulation raising investment advice standards, which partially went into effect in June.

The firm has not yet determined if it will be a requirement for advisers to use the new platform with retirement savers, because that decision depends on the regulatory environment and industry developments, according to a source with knowledge of the situation. LPL would make that determination closer to the time the platform is available, in early 2018.

The fiduciary rule will fully come into force in January, barring any changes in timing or to the rule's substance made by the Trump administration, which is currently reviewing the Obama-era regulation. The DOL recently issued a request for comment on the rule to guide any proposed changes.

The rule seeks to eliminate conflicts of interest for advisers providing investment advice to retirement savers. Advisers have historically been able to sell mutual funds and other investment products with varying levels of upfront and trailing commissions, and recommend a product generating the largest adviser payout.

Under the rule as currently written, that practice wouldn't be allowed in brokerage retirement accounts such as individual retirement accounts. Broker-dealers have had to levelize their commission structures regardless of the recommended investment product.

Firms have addressed this change in different ways. Edward Jones, for example, announced a ban on mutual fund commissions in IRAs following release of the DOL's rule in April 2016, due to the broad variability in mutual fund compensation. The firm is now reconsidering that position, and is planning to roll out a new type of account this summer to allow for receipt of mutual fund commissions.

Wells Fargo Advisors put a limit on mutual fund share classes, requiring all new mutual fund purchases in brokerage IRAs to be in a T share. These products carry a 2.5% upfront commission and 0.25% trail.

Bank of America Merrill Lynch announced in October an outright ban on commissions in new, advised brokerage IRAs, but has since retreated slightly from that position to allow for commissions in a limited number of circumstances.

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