Tahoe Market Pulse: A Fiduciary Rule Update | SierraSun.com
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Tahoe Market Pulse: A Fiduciary Rule Update

I’ve written a few articles on the Department of Labor’s fiduciary rule. You’ll recall that rule requires brokers to put their clients’ interests ahead of their own when it comes to managing retirement accounts.

I predicted that it would slow the sales of mutual funds with loads or 12-b1 fees, would increase the popularity of exchange-traded funds, and it would decrease the sales of annuities.

Now we are beginning to see changes that I didn’t expect. Merrill Lynch recently announced that they will no longer give new retirement savers the option of paying a commission for trades, opting instead to charge a fee based on a percentage of their managed assets. Doing so will remove the incentive brokers (some call themselves wealth managers) receive by selling certain products.



Merrill understands that those who rarely make changes to their portfolio may pay more after this change so they are giving their brokers the ability to discount fees. Alternatively, clients will be able to self-direct their account online.

Will other large firms follow suit? We’ll know soon enough as the rule takes effect on April 10. LPL Financial, the nation’s largest independent broker-dealer, will still offer a commission-based option to investors. Morgan Stanley will announce their plan within the next couple of weeks, but it is believed that they will not follow Merrill Lynch’s lead. Other firms may be in a wait-and-see mode.



For the firms that continue to offer commission-based products, the fiduciary rule requires them to disclose fees in a best-interest contract exemption.

With or without this rule, there is already a trend among the large brokerage firms to provide fee-based advice. At Merrill, 61 percent of their advisers have at least half of their client assets managed as fee-based. At Morgan Stanley, 41 percent of their managed assets are fee-based. Most independent advisers, like myself, are already held to the fiduciary standard.

It’s the political season so it should be noted that Hillary Clinton is in favor of the fiduciary rule. Donald Trump hasn’t addressed the issue directly, but an adviser to his campaign said Trump will cancel the rule if he is elected. There’s no doubt that the election will have a profound effect on financial regulation.

David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.


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