JPMorgan seems to be in a state of flux, along with other broker-dealers, in terms of what to do with plans to drop commissions in retirement accounts as part of its compliance with the Department of Labor’s new fiduciary standard.
A letter sent to clients earlier in March said they would be moved into self-directed accounts by April 7, if they had not already moved into a fee-based managed account or chosen the self-directed option. However, the letter also said any delay in the implementation of the rule would put a hold on the automatic shift.
Financial analysts with Keefe, Bruyette & Woods say that a delay in the rule “telegraphs a potential strategic change if the rule is watered-down or scrapped, in our view.”
(The Labor rule is expected to be delayed by 60 days; a 15-day comment period on plans to move the rule’s first compliance date from April 10 to June 9 ended Wednesday.)
JPMorgan’s move to push clients out of commission accounts was not anticipated by the KBW analysts Brian Kleinhanzl and Michael Brown, CFA. (The firm first alerted clients to expected shifts in its retirement services in November, according to a spokesperson.)
“In light of reports last week about Merrill, we thought that JPM may also choose to utilize the best-interest contract (BIC) exemption and permit commission-based retirement accounts under certain circumstances,” they said in a note to investors on Wednesday.
“However, JPMorgan is not very big in the retirement business, so JPM’s ultimate decision to stick to the course laid out back in November makes sense to us,” they added.
Rule, No Rule?
What happens if the new fiduciary standard is not implemented as planned?
The KBW analysts expect that JPMorgan will probably push back changes to retirement accounts until regulators have released a clear plan for the fiduciary rule.
If the rule is watered down significantly, the two say, JPMorgan could opt “to follow peers that have opted to use the [best interest contract] such as Wells Fargo and Morgan Stanley, and if the rule is scrapped completely the company may walk away from plans to shift clients from commission-based retirement accounts to self-directed or fee based alternatives.”
The analysts caution that such steps do not jibe with their view of the firm’s possible strategies, “given JPM’s smaller relative exposure to the retirement business.”
Still, given the uncertainty surrounding the new DOL rule, they “would not be surprised to see additional announcements regarding compliance with the rule as it evolves.”
Merrill Lynch told its Thundering Herd about a week ago that it plans to explore “options” for at least some clients who might benefit from commissions in retirement accounts, a shift from its earlier fee-only approach to the new Department of Labor’s fiduciary standard.