In October brokerage firms began “voting” in the other campaign – the campaign on the DOL rule. Through last week at least seven firms announced whether they would stick with commissions and service retirement accounts through the best interest contract exemption (BICE) or instead move to abandon commissions and offer “fee-based” retirement accounts.
We are in the “BICE or not to BICE” campaign.
Merrill has led by rejecting commissions and the BICE, except for rollovers from commission to fee-based accounts. Morgan Stanley decided to keep commissions and accept the BICE, while still offering clients fee-based IRAs. Ameriprise, Raymond James, LPL and Edward Jones have generally followed Morgan Stanley. Only Commonwealth Financial followed Merrill.
Early reporting on the BICE campaign has been mostly firm-centric and about how firms are dealing with commissions in light of BICE requirements. One premise was expressed by Aite Group analyst Denise Valentine, who was quoted in one report as saying there’s no value “difference” between commissions and fees. “What the firms feel is appropriate for them.” She continues, “There is no right or wrong” between fees and commissions.
True, the law is neutral on compensation structures that firms may utilize. But does this mean the value proposition and quality of advice to retirement investors of all brokers and advisers under different compensation structures is also “neutral”?
Further, irrespective the compensation structure, higher costs that cannot be justified – be they fees or commissions – will be deemed to “waste” client assets and be impermissible under BICE. This point should drive messaging in the BICE campaign explaining overcoming conflicts of interest and discussing what “best interest” means. Yet old habits die hard.
Morgan Stanley, with 16,000 brokers, has set out its vision of servicing retirement accounts under the DOL rule with clarity. “We believe our advisors can most effectively uphold a fiduciary standard of care and work in clients’ best interests by continuing to offer choice,” according to its co-heads of wealth management in the announcement. CEO James Gorman set the stage for this announcement a week earlier in the company’s quarterly earnings call, “Choice has been a fundamental guiding light for the firm and this is unlikely to change.”
BDs’ announcements on BICE preceded the DOL FAQ released October 27. The FAQ provides guidance on, among other issues, BICE and BICE for level-fee fiduciaries. In 24 pages the DOL guidance sets out when BICE applies and what it means.