Wells Fargo requires advisers to use level fees for new 401(k) business

The move follows that of other large brokerage houses such as Merrill Lynch, which requires its retirement plan advisers to act as fiduciaries post-DOL rule

Nov 14, 2017 @ 4:42 pm

By Greg Iacurci

Wells Fargo Advisors is requiring that financial advisers servicing 401(k) plans do so in a level-fee arrangement for new business, as have other large brokerage firms, in response to the Department of Labor's fiduciary rule.

"We have moved to consulting contracts for new business," a spokeswoman confirmed to InvestmentNews. "We feel this model allows for enhanced transparency around services and fees."

That means advisers servicing 401(k) plans going forward will do so as fiduciaries receiving a flat fee — a percentage of plan assets, for example — for acting in clients' best interests.

Prior to the fiduciary rule, which raises investment-advice standards in retirement accounts, firms such as Wells Fargo would only allow a select group of advisers, maybe only a few hundred, to service retirement plans as fiduciaries. The remainder with retirement plan business could do so as non-fiduciaries and receive commissions, or 12b-1 fees, as payment.

However, the fiduciary rule, which partially came into effect in June, ups the standard of care for 401(k) clients. Thus, large brokerages are increasingly forbidding their advisers from serving 401(k) plans in a non-fiduciary capacity in an attempt to reduce their legal liability.

The rule views commissions as a potential conflict of interest, because they could incentivize an adviser to select 401(k) investment funds that pay the most, whereas level fees don't carry a similar incentive because the fee is the same regardless of the chosen investment.

Merrill Lynch Wealth Management, which has about 15,000 advisers, announced plans in March to transition its 401(k) business to a completely fiduciary model, similar to Wells Fargo. It has since grown the number of advisers allowed to service plans in this capacity by more than 3,000.

Some firms such as Morgan Stanley Wealth Management have taken a slightly different tack, creating products for some non-fiduciary advisers whereby the firm, not the adviser, handles the fiduciary part of the client relationship.

It wasn't immediately clear how many of Wells Fargo's roughly 14,500 advisers are currently allowed to serve as 401(k) fiduciaries, or how the firm is implementing its new business model.

Wells Fargo's business change began in February, the company spokesperson said, although the firm never publicly announced it. Wells Fargo announced in December that it would continue allowing commissions for individual retirement accounts.

0
Comments

What do you think?

View comments

Recommended for you

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

B-D Data Center

Use InvestmentNews' B-D Data Center to find exclusive information and intelligence about the independent broker-dealer industry.

Rank Broker-dealers by

Featured video

INTV

What's behind the TCA, ETrade deal?

Deputy editor Bob Hordt talks with senior columnist Jeff Benjamin about what each party in the recent acquisition stands to gain by joining forces.

Latest news & opinion

What's in a name? For TCA by ETrade, everything

Trust Company of America is gone, and there's big buzz over the name change. But turning the custodian into an industry powerhouse will take a lot longer — if it happens at all.

When it comes to regulating AI in financial services, murky waters are ahead

Laws are unclear on how the technology fits in with compliance.

As Ameriprise case shows, firms on hook when brokers go bad ​

The SEC will collect $4.5 million from the brokerage firm for failing to supervise brokers who were ripping off clients.

10 highest paid professions in America today

These are the top-paying jobs in the U.S., according to Glassdoor.

Ameriprise to pay $4.5 million to settle SEC charges that five reps stole more than $1 million from clients

Agency censures firm for not protecting clients from thieving brokers.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print