Firms and Government Take New Looks at DOL Fiduciary Plans
Edward Jones on Wednesday said that it expects to modify its previously announced prohibition on sales of mutual funds in commission-based retirement accounts, joining other firms that are delaying or reversing policies they thought would be necessary to comply with the Department of Labor’s fiduciary rule.
“We plan to add a….commission-based retirement account, currently under construction,” Jones spokeswoman Regina DeLuca-Imral said in an e-mail. “Additional flexibility granted by the Department of Labor has created the possibility that Edward Jones will be able to offer our clients mutual funds in a commission-based account during the transition period to implement the DOL’s fiduciary rule.”
The Obama administration’s rule requiring financial advisors to put their customers’ interests ahead of their own when advising on retirement accounts goes into partial effect on Friday. However, the Trump administration is reviewing the rule and has said it will not focus on enforcement until at least January 2018.
Labor Secretary Alexander Acosta on Wednesday told a Congressional panel that his department sent a request for information to the Office of Management and Budget on Wednesday that could guide further changes before the rule takes full effect.
“We need that information and data in order to decide how to proceed,” he testified.
Those signals are apparently heartening firms that have been negotiating with fund companies and their own advisers to ensure that their compensation practices on retirement accounts comply with the rule. LPL Financial, the biggest independent broker-dealer, last week told brokers it has delayed a plan to prohibit its salesforce from buying funds directly from companies pending full implementation of the rule.
Edward Jones, the St. Louis-based mom-and-pop brokerage giant that is heavily reliant on mutual fund sales, last August said it would not allow brokers to sell funds in commission-based brokerage accounts once the fiduciary rule went into effect. Like Merrill Lynch, it feared that the rigors of ensuring compliance with the rule’s level-fee and reasonable compensation requirements, and the cost of defending against lawsuits for violations, would be prohibitive.
However, the Trump administration’s indications of second thoughts about the rule modified the timing of Jones’ radical decision to ban mutual fund retirement sales this week.
“The DOL has acknowledged in recently issued FAQs it may take longer for the industry to implement fully compliant mutual fund solutions,” DeLuca-Imra said in explaining why the firm is prepping an interim program. “We hope to roll out this new account by midsummer.”
While most firms have laid stakes too deeply in the ground with clients, brokers and product manufacturers to make radical changes in their DOL policies (Merrill Lynch has announced some tweaks), Acosta’s recent pronouncements have fueled hopes of a major pullback that could preserve the status quo on customer-care standards.
“The fate of the rule is very much in question, so you’ve got firms trying to make decisions about how to comply while the administration is sending very strong signals that everything is going to change,” said Barbara Roper,director of investor protection at the Consumer Federation of America, which supports the Obama administration version of the rule. “It would obviously be a concern if firms are reading [Acosta’s comments] as a broader statement that no enforcement of the rule is going to be forthcoming.”
Edward Jones’ decision to permit commission-based mutual funds in retirement accounts for an interim period was reported earlier Wednesday by “Investment News.”