Fee-based brokerage accounts

or Register to post new content in the forum

12 RepliesJump to last post

 

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Jan 25, 2008 2:10 pm

Hi, I'm the senior editor at Registered Rep., and I'd like to know what affect the disappearance of the "Merrill Rule" has had on brokers/advisors.



Also, if anyone can shed some light on what the firms have had to go through in order to transition these accounts that would be great. Anyone have to move a substantial number of accounts, assets? How did it go--any embarrasing/akward conversations with clients about why they had to be switched?



Where did the $300 billion that was in these accounts go? If you now have clients in "advisory" accounts, how has your relationship changed? Higher fee, giant disclosure document? Are you now a fiduciary, or is the firm taking on this role? Lastly, what good has this--the disappearance of fee-based brokerage accounts--done for investors/advisors/firms? Thanks for your time

Jan 25, 2008 2:16 pm

I can't speak for others on this, but at our firm it was a total non-event.

Jan 25, 2008 2:20 pm

Any idea how much assets were in these accounts at your firm? Every attorney and a few former branch managers that spoke on this topic said it would be an administrative and communications nightmare. I'd like to know how the transition was handled.

Jan 25, 2008 3:16 pm
Senior Editor:

Any idea how much assets were in these accounts at your firm? Every attorney and a few former branch managers that spoke on this topic said it would be an administrative and communications nightmare. I'd like to know how the transition was handled.

 
I honestly wish I could tell you.  There was quite a bit of Sturm und Drang in the financial press leading up, and then....nothing.
Jan 25, 2008 4:35 pm

It was something of a minor PITA. It was one more admin thing to do that had there not been the change, I wouldn't have had to take time from real business to take care of. It had to be explained to clients, the difference between an advisory and brokerage accounts, again. They’d heard it before, but frankly they didn’t care, and we had to review it. <?: prefix = o ns = "urn:schemas-microsoft-com:office:office" />


 


Any time you have to reopen an existing relationship, for whatever reason, it can be tricky, but I moved the vast majority of assets from flat fee to advisory accounts without a hiccup. Some assets went o traditional brokerage accounts because they were unsuitable for advisory for one reason or another, but on the whole just a paper drill.


Jan 25, 2008 4:36 pm

It was something of a minor PITA. It was one more admin thing to do that had there not been the change, I wouldn't have had to take time from real business to take care of. It had to be explained to clients, the difference between an advisory and brokerage accounts, again. They’d heard it before, but frankly they didn’t care, and we had to review it. <?: prefix = o ns = "urn:schemas-microsoft-com:office:office" />


 


Any time you have to reopen an existing relationship, for whatever reason, it can be tricky, but I moved the vast majority of assets from flat fee to advisory accounts without a hiccup. Some assets went o traditional brokerage accounts because they were unsuitable for advisory for one reason or another, but on the whole just a paper drill.

Jan 25, 2008 5:19 pm

I had many fee in lieu of commission accounts and had to get new paperwork signed. The fee structure on the advisory account was slightly higher, but I offered a discount to bring the fee back in line with what the clients paid previously. I just called all the clients and explained the lawsuit and how it was resolved and how it impacted each client. Then I offered a few choices. All but one went to the advisory account.

Jan 25, 2008 9:09 pm

Ditto mikebutler's comments...clients in that arrangement were typically de facto advisory relationships.

Jan 25, 2008 10:18 pm
Philo Kvetch:

I can't speak for others on this, but at our firm it was a total non-event.



It was a non event because all of our fee-based accounts are advisory accounts, and you must be registered as an IAR to use them.

Jan 26, 2008 9:35 am

My experience mirrored that of the wirehouse I'm with. 85% moved into a fee-based advisory account of some type, and 15% went back to a traditional commisionable brokerage account.

It was a wash from a revenue perspective. Advisory account fees are slightly higher, compensating for the 15% attrition.
From a client relationship standpoint, I think it forced clarification on who's "driving the bus". In a fee-based brokerage account, it was always unclear who was in charge of the investments. Sometimes it was the client, sometimes the advisor.
In an advisory account, it is clear to both advisor and client that the advisor is driving the bus.
No real problem with the papework issue. By now everyone is more than used to the 50 page disclosures that need to be signed for just about everything.
In the end, it's good to have this issue behind us.
Jan 26, 2008 10:45 am

I would concur with the others - it seemed to be pretty much a non-event at my firm as well.  Strangely anticlimactic after all the prognostications of the sky falling.  It reminded me a little of the Y2K scare.

As someone who had a number of fee-in-lieu accounts it was certainly something I could have lived without, as it forced me to spend a lot of time going over regulatory issues with clients instead of doing other work for them.  Client reactions were generally a mixture of bewilderment and annoyance in trying to decipher what it was all about. 

You have to be really motivated to take the time to fully grasp the implications of this change, and in practice few clients show such motivation.  Maybe they're too busy trying to figure out what to do with the reams of disclosures they already receive to little benefit.  Especially in the world of lawyers and regulators, quantity is not the same as quality, and more is not always better, though they seem to take little notice of this. 

But I digress.  I suspect at the end of the day, this simply served to accomplish two things.  First, it increased liability exposure for b/d'ers as assets moved from fee-in-lieu brokerage accounts with suitability standards into their subsidiary's RIA advisory accounts with fiduciary standards.  Probably the only thing that would scare the b/d'ers more than accepting fiduciary responsibility/liability via their RIA is the fear of accepting it through each individual rep.

Second, it decreased investment choices and increased investor expenses at least slightly, as most advisory programs carry higher fees that fee-in-lieu accounts.  Some reps may have discounted fees to buffer this a little, but I doubt you would find many cases where the cost to investors actually decreased.  Some investors who chose to revert to traditional brokerage accounts now face the double whammy of paying a commission to sell securities for which they already paid a fee to hold. 

I'm afraid this was yet another example of the old adage, 'when all is said and done, more is usually said than done.'  




Feb 8, 2008 6:36 pm

Remember Y2K? 

 
Just kidding... in all seriousness, it was a lot of extra administrative work, but all went very well in transitioning the accounts to another platform.