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.


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