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BDs, Trade Groups Team Up to Clarify Murky BD Fees

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Industry trade groups and large brokerage firms like LPL and Merrill Lynch have joined forces to develop rules that ensure broker-dealers are disclosing their fees in a way that’s easily understood by investors.

The working group, convened by the North American Securities Administrators Association, includes representatives of the Financial Industry Regulatory Authority, the Securities Industry and Financial Markets Association, the Financial Services Institute as well as Signator Investments Inc., Prospera Financial Services, LPL Financial, Wells Fargo Advisors, Edward Jones and Bank of America Merrill Lynch.

Andrea Siedt, NASAA president and Ohio securities commissioner, said in a Thursday statement that the trade groups would collaborate on ways to achieve “more meaningful disclosure” of broker-dealer fees. “Investors have a right to know how much they are paying for these services. Our goal is to develop a model fee disclosure that is simple to read, easily accessible, and can be used effectively by investors to understand and compare fees.”

NASAA recommended that a working group be formed after the trade group issued a report in April uncovering disparities in how broker-dealers disclose the fees they charge their customers.

While broker-dealers may be complying with the technical requirements governing fee disclosures, the NASAA report concluded that the disclosures lose their effectiveness when hidden in small print, imbedded in lengthy account opening documents, or varied in terminology that does not define the service provided.

Seidt said in the statement that the working group will take into consideration the different types of firms, including wirehouse firms, independent broker-dealers, clearing firms, and introducing firms, among others.

“The working group will consider a variety of options, including but not limited to a model fee disclosure form, accessibility and transparency guidelines, uniformity in terminology and nomenclature of fees and recommendations on how to notify customers of fee changes. When exploring model fee disclosure, the working group will focus on several areas, including presentation, customer comprehension, and timing and methodology of fee disclosure,” Seidt said.

Robert Colby, FINRA’s chief legal officer, said in the joint statement issued by the groups that “It is important that investors fully understand the fees associated with their accounts.”

Fee disclosure, added Kenneth Bentsen, SIFMA president and CEO, “is an important issue, and we look forward to participating with NASAA, FINRA, and the other working group members in this important dialogue.”

Dale Brown, FSI’s president and CEO, added that “FSI’s members understand the importance of constructive engagement with our regulators,” and that FSI “supports NASAA’s goal of providing transparency to investors through easily accessible and simplified disclosures.”

Check out BD Fee Disclosures Have ‘Wide Disparity’: NASAA on ThinkAdvisor.


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