Turns out commissions are OK at Commonwealth Financial, JPMorgan, Merrill Lynch

Commonwealth and JPMorgan reevaluate use of commissions in retirement accounts

Sep 6, 2018 @ 2:33 pm

By Bruce Kelly

Last week, Merrill Lynch said it was reversing its ban on commissions in individual retirement accounts now that the Department of Labor's fiduciary rule is officially dead.

It turns out the home of the thundering herd is not the only retail brokerage firm to realign its sales policies regarding commissions in the wake of the demise of the DOL fiduciary rule.

Commonwealth Financial Network, a leading independent broker-dealer that said in 2016 it was considering a ban similar to Merrill Lynch's, said this week that the discussed ban on commission never took effect because the rule was never fully implemented.

"In light of the Department of Labor fiduciary rule being overturned — and consistent with our belief that the fee or commission decision should reside between the adviser and the investor — we are continuing to allow commission-based business," Commonwealth CEO Wayne Bloom wrote in an email.

Meanwhile, JPMorgan Chase & Co. confirmed Thursday that it is relaunching its full-service brokerage IRA offering, meaning that advisers are once again able to charge clients commission. In March 2017, JPMorgan said it was moving ahead with its plan to drop commissions in accounts that use financial advisers.

The DOL's fiduciary rule was one of the most hotly contested regulations in the recent history of the securities industry. Consumer groups fought for it, saying it would better protect clients, while brokerage firms warned it would raise costs and drive up the price of investment advice for retail investors.

In June, the U.S. 5th Circuit Court of Appeals confirmed a March decision to strike down the Labor Department's fiduciary rule.

The court issued a mandate making effective the March 15 split decision that vacated the DOL regulation. The court majority held that the agency exceeded its authority in promulgating the rule, which would have required brokers to act in the best interests of their clients in retirement accounts.

In October 2016, Merrill Lynch had startled the retail brokerage industry by mandating that its advisers used only an advisory account with a flat fee for retirement accounts, as opposed to a brokerage account charging a commission when clients bought products.

The securities industry was left trying to figure out the best way to comply with the Department of Labor's fiduciary rule, which was very much alive at the time. The election of President Donald J. Trump in November 2016 and the expectation of a pro-business, anti-regulation, Republican regime immediately put the rule's survival in doubt.

Two years ago, before Mr. Trump's election, it appeared that Commonwealth Financial Network was going to follow Merrill Lynch's lead. Days after Merrill Lynch's announcement, Commonwealth said it would stop offering commission-based products in IRAs and qualified retirement plans.

The firm was looking to avoid exposure to potential class action litigation allowed under the DOL fiduciary rule, John Rooney, managing principal, saod in an interview Thursday.

"The legal exposure didn't make any sense, and once that disappeared we said commissions are OK again," Mr. Rooney said.

"We never stopped [charging commissions]," he said. "Once the DOL was dead, we went back to our original guidance. We have always believed in consumer choice, but we didn't like the legal exposure DOL opened us up to."


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