As Donald Trump’s presidency has raised the possibility of delays and even a repeal of the Labor Department’s new fiduciary standard, Morgan Stanley is telling its 15,700-plus advisors that many of its planned changes will happen regardless.
The wirehouse has said its retirement account clients can work with commissions or fees in the future and that it will be lowering some charges for trades. Rival Merrill Lynch has said it plans to end commission-based retirement accounts.
“With or without the rule, we fundamentally believe that serving our clients well and continuing to lead the industry forward require that we provide an increasingly higher standard of care for our clients across both retirement and non-retirement assets. To that end, and regardless of any potential delay, we will continue to move ahead in three important areas in the coming months,” explained Shelley O’Connor and Andy Saperstein, co-heads of the wealth management unit in Thursday’s memo.
Morgan Stanley’s view echoes that of many independent broker-dealers, as expressed at Monday’s Financial Services Institute OneVoice 2017 conference in San Francisco. “There’s no going back,” Wayne Talleur, president of Madison Avenue Securities, said before a crowd of about 700 attendees at the conference’s opening sessions. “We’ve evolved more in the last 18 months than we have over our [entire] existence.”
“Even if [the DOL rule] is delayed, we have entered into the fiduciary era,” said Valerie Brown, executive chairwoman of the Advisor Group, which includes several independent broker-dealers with a total of 5,000 affiliated advisors.
In terms of specific product design and pricing changes that Morgan Stanley told its advisors about in November, the firm says it will make “many” such adjustments, including those to equity and unit investment trust commissions.
It also intends to boost “quality standards” for third-party managers on its platform and to decrease the number of “redundant strategies.”
Overall, the wirehouse aims to “reduce the potential for conflicts of interest across our platform, including our arrangements with product providers, and enhance client disclosures,” the wealth management leaders said.
Its total level of client assets is $2.1 trillion—42% of which are fee based, and its advisors have average yearly revenue (or fees and commissions) of $1.01 million.
Morgan Stanley’s wealth unit is under pressure to hit certain profit targets. The unit’s pretax margin was 22% in the latest quarter vs. 23% in the third quarter of 2016 and 20% in the year-ago period.
Chairman & CEO James Gorman says the business should “hit the 23-to-25% range by year-end ’17,” according to a conference call with analysts in mid-January.
Meanwhile, Merrill Lynch says that its move to end commission-based retirement accounts is part of its “heightened standard of care.”
Andy Sieg, head of Merrill Lynch Wealth Management, says the business is focused on “what our clients want from us in regard to their retirement accounts: that is to act in their best interest and minimize conflicts as part of our advice,” according to a statement. Depending on what is announced, it may “adjust the timelines for certain operational changes,” he adds.
— Check out What Morgan Stanley, Wells Fargo and Merrill Lynch Have in Common on ThinkAdvisor.