As the effective date of the Labor Department’s fiduciary regulation nears, a broker-dealer has outlined how they plan to deal with the changes.
According to The Wall Street Journal, Edward Jones has already spent about $25 million to prepare for the rule so far, and estimates it will spend about twice that much between now and April to build out its compliance and supervisory systems and on preparing advisers and clients.
The report, based on an interview with Jim Weddle, Edward Jones’s head and managing partner, also said that the firm plans to curtail mutual-fund access for retirement savers in accounts that charge commissions, while cutting the investment minimums on others.
Weddle told the paper that mutual-fund pricing “needs to be very consistent” to prove a broker made an unconflicted recommendation, and until that point, the firm says it will instead offer commission-based IRAs to its 4 million clients in retirement accounts, using the Best Interest Contract Exemption (BICE).
In those accounts retirement savers would be able to buy stocks, bonds, variable annuities and certificates of deposit, charging them a commission for each transaction – but not mutual funds or exchange-traded funds until the aforementioned consistent pricing is in place.
The commission-based IRAs will carry $100,000 minimums, although that hurdle is only $10,000 for variable annuities. Those retirement savers who want to buy mutual funds can opt for an advisory account, which charges an annual fee rather than a commission for each transaction. Investments in existing IRAs made before April 10 of next year can remain in place without any changes (as long as no new investment purchases are made), according to the report.
Earlier this month Principal Financial,announced that complying with the new fiduciary rule will cost an estimated $1 million a month for the next 18 to 24 months, and between $5 million to $10 million a year afterwards. Ameriprise, which has a national network of approximately 10,000 advisers, incurred a $7 million expense related to “DOL planning and implementation” in the second quarter, while Cambridge Investment Research Inc., an independent broker-dealer with approximately 3,000 advisers and an estimated $750 million in revenues for 2016, will spend in excess of $10 million as of the fiduciary rule’s implementation date next April.
