Court Kills DOL Rule, J.P. Morgan Restores Brokerage Accounts

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J.P. Morgan Securities Chief Executive Chris Harvey is as good as his word.

“Today, the U.S. Court of Appeal for the Fifth Circuit officially issued a mandate vacating the Department of Labor’s Conflict of Interest rule,” he wrote in a memo to the firm’s brokers on Thursday afternoon. “Effective tomorrow, June 22, we are making changes to our retirement operating model.”

Harvey, together with the heads of J.P. Morgan Chase’s larger private banking businesses, had told brokers in early May that the shackles would come off commission-based retirement accounts as soon as the Dallas-based court confirmed its March decision to kill the DOL fiduciary rule that was opposed by much of the securities and insurance brokerage industry.  

Two out of three Fifth Circuit judges had earlier ruled in favor of the industry arguments, saying that the Obama administration-era Labor Department did not have the authority to make rules affecting brokers and their clients, even though the rule was restricted to retirement accounts.  The mandate was expected to have been issued in early May, but the court delayed officially confirming its decision pending an attempt by three states and the AARP to intervene so it could appeal the Fifth Circuit decision in lieu of the Trump-era DOL.

The mandate issued on Thursday officially killed the fiduciary rule.

“It’s a pretty big deal,” one of the approximately 450 brokers working at J.P. Morgan Securities, said of the return to commission accounts. “Clients can go back to trading stocks in their IRAs, they can buy annuities, we can have rollovers again. It’s back to business as usual.”

To be sure, brokers aren’t going to jump tomorrow to move customers whose accounts were transferred into wrap-account fee programs, the broker said, but teams will be eagerly calling clients who complained about fees and prefer paying commissions tied to individual trades.

J.P. Morgan Securities is the traditional broker-dealer that J.P. Morgan Chase absorbed with its purchase of Bear Stearns Securities during the financial crisis.

Merrill Lynch, which moved more quickly than most rivals to restrict commission-based retirement accounts after the fiduciary rule was approved by the Obama administration in October 2016, last week said it is reviewing its policies but is wary of moving too radically given that the Securities and Exchange Commission has proposed a rule requiring brokers to act in their clients’ best interests.