There always seem to be certain events or cycles where some experts say that wire houses will not be able to compete against RIAs and independent advisors because of their more restrictive model. That conversation arose after the imposition of 408(b)(2), which requires advisors to disclose in writing whether or not they are acting as a fiduciary for the services they are rendering and the associated fees. Wire houses have been careful about allowing their advisors to act as fiduciaries because many are not competent enough, exposing the firm to significant liability.
There was a brief flare-up in this debate recently when the CFP Board required all designees to restate their method of compensation; previously, some wire house reps indicated “fee only” on their profiles.
The debate has been renewed by the discussions around the DOL’s expected rule redefining a fiduciary and the SEC’s planned uniform fiduciary proposal. All of the wire houses now allow a select group of their advisors to act as ERISA 3(21) fiduciaries, with certain restrictions — they must have a minimum number of plans and assets under management; fiduciary services may be provided to larger plans only; and some type of industry designation must be completed.
Wire houses have natural advantages over independent advisors, including:
• brand recognition of the firm;
• deep pockets of the parent; and
• relationships with prospects.
Firms tied to a retail bank, like Merrill Lynch and Wells Fargo, have other obvious advantages, with Merrill starting to capitalize on BoA’s relationships by teaming up corporate loan officers with designated plan advisors. Other firms team up advisors who may not focus on the DC market with specialists offering partnerships for larger firms or publicly traded companies. So once again, the demise of wire houses is greatly exaggerated — even with new fiduciary regs looming.
