Fee based trading account

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May 21, 2007 9:52 pm

what is going on with this? my firm says there is no problem and fee based stock accounts.  i  also heard my old company , morgan stanley , is not going to open new ones and will close the existing choice account in 120 days? i also heard that they are going to stop the online trading portion of the account. I guess i really have not followed this "merrill rule" very closely.


any thoughs?

May 21, 2007 10:44 pm
aldo63:

what is going on with this? my firm says there is no
problem and fee based stock accounts.  i  also heard my old
company , morgan stanley , is not going to open new ones and will close
the existing choice account in 120 days? i also heard that they are
going to stop the online trading portion of the account. I guess i
really have not followed this "merrill rule" very closely.


any thoughs?





Probably a split system where people pay for both trades and quarterly maintenance fee.



The firms will do anything to avoid being RIA's since that opens up a big can of worms.

May 22, 2007 9:48 am
aldo63:

  i  also heard my old company , morgan stanley , is not going to open new ones and will close the existing choice account in 120 days? i also heard that they are going to stop the online trading portion of the account. I guess i really have not followed this "merrill rule" very closely.


any thoughs?




Your info about MS is incorrect.

May 22, 2007 9:49 am
AllREIT:


The firms will do anything to avoid being RIA's since that opens up a big can of worms.



The firms are ALREADY RIAs in other sorts of accounts. The issue is how to incorporate that process into what would otherwise be a traditional brokerage account.

May 22, 2007 9:52 am
aldo63:

what is going on with this? my firm says there is no problem and fee based stock accounts.  



Actually, depending on the final touches from the SEC there are "problems" with the construction of the older fee in lieu of commission accounts. I have no doubt that behind the scenes your firm is scrambling to anticipate where the SEC is going and what changes they'll have to make to meet the SEC.

May 22, 2007 9:57 am

The more I hear about this crap, the more I love selling annuities.

May 22, 2007 9:59 am
mikebutler222:
AllREIT:


The firms will do anything to avoid being RIA's since that opens up a big can of worms.





The firms are ALREADY RIAs in other sorts of accounts. The issue is how
to incorporate that process into what would otherwise be a traditional
brokerage account.





Mike, the deal is that brokers are acting as IAR's representing RIA's
who run the SMA's towards clients. They are not acting as RIA's
themselves.



As a Registered Rep, you are an employee of "the firm" with a duty to
act in the best interests of the firm at all times, subject to the
limitations of NASD wrt to not harming clients. This is where the
merrill lynch rule came from.



Right now its unclear how the SEC will resolve this. Because if it
turns out that going forwards brokers have a positive duty to act in
the best interests of clients, you are going to see some big changes in
the industry.

May 22, 2007 10:22 am

"As a Registered Rep, you are an employee of "the firm" with a duty to act in the best interests of the firm at all times, subject to the limitations of NASD wrt to not harming clients."


This is not an accurate statement.  Not all RR's are employees of their firm.  I'm not an employee of my B/D.  Secondly, we have no duty to act in the best interest of the firm.  Rather, we simply have to make sure that the investments are "suitable".  ex. Two mutual funds are suitable for my client.  One pays my B/D more money.  I have no duty to use the one that pays the firm more money.


Also, if you are acting as an IAR, you must act in a fiduciary manner.  It does not matter that you are an IAR instead of being your own RIA.

May 22, 2007 11:56 am

AllREIT:
mikebutler222:

<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />


AllREIT:


The firms will do anything to avoid being RIA's since that opens up a big can of worms.



The firms are ALREADY RIAs in other sorts of accounts. The issue is how to incorporate that process into what would otherwise be a traditional brokerage account.




Mike, the deal is that brokers are acting as IAR's representing RIA's who run the SMA's towards clients. They are not acting as RIA's themselves. 


That's true of SMA accounts, it's not true of accounts where MS acts as an RIA, and yes, those accounts exist in several forms. They include those accounts where the rep runs a discretionary advisory account (most every firm has some version) and/or when the firm is hired directly as an RIA.



AllREIT:


As a Registered Rep, you are an employee of "the firm" with a duty to act in the best interests of the firm at all times, subject to the limitations of NASD wrt to not harming clients. This is where the merrill lynch rule came from.


That’s about as self serving and cynical a way to describe the ML rule as has ever been stated.  The “best interests of the firm at all times” line is a fiction you use with your clients as a sales pitch. You should know enough about the industry to know it’s untrue. The ML rule simply allowed fee-based brokerage accounts to avoid coming under the IAA of 1940 and continue to be regulated under the traditional brokerage rues.

AllREIT:

Right now its unclear how the SEC will resolve this. Because if it turns out that going forwards brokers have a positive duty to act in the best interests of clients, you are going to see some big changes in the industry.


We’ve ALWAYS had the positive duty to act in the best interests of the client, due suitability, etc. What’s been missing, and has yet to be resolved, is how the new requirement (or at least what seems to be a requirement) of acting as a fiduciary. Being a fiduciary isn’t the only way to act in a client’s interests, although that’s the way the term is being bandied about.



May 22, 2007 12:10 pm

This is a fine example about how posting frequently and on all subjects, including those where your scope of knowledge is limited, eventually makes one look like a fool, even if one is generally considered an intelligent person.  I'm not an employee of my B/D either, but even when I was, I had enough sense to put client interests ahead of my employer's.  Anyone who's studied for the series 7 should know better than a foolish generalization like that.


Don't take frequent posting as an automatic sign of intelligence on all subjects.

May 22, 2007 3:25 pm
mikebutler222:
AllREIT:

As
a Registered Rep, you are an employee of "the firm" with a duty to act
in the best interests of the firm at all times, subject to the
limitations of NASD wrt to not harming clients. This is where the
merrill lynch rule came from.


That’s about as self serving and cynical a way to describe the ML rule as has ever been stated.  The
“best interests of the firm at all times” line is a fiction you use
with your clients as a sales pitch. You should know enough about the
industry to know it’s untrue. The ML rule simply allowed fee-based
brokerage accounts to avoid coming under the IAA of 1940 and continue
to be regulated under the traditional brokerage rues.


Oh please. The ML rule enabled B/D's to evade the responsibilities that the IAA would have put on them and thier reps when dealing with fee based accounts.


The goal of the B/Ds was to create a business model that had all the flavor of fee based but just one calorie.


That is what it has always been about. Creating a "safe space" for
all sorts of shady activities. It's the exact same reason AMP and the
B/Ds are creating a circus over at the CFP standards comittee over this
exact issue.


Either you explicitly act in the best interests of clients, or you don't.


[quote=AllREIT]Right
now its unclear how the SEC will resolve this. Because if it turns out
that going forwards brokers have a positive duty to act in the best
interests of clients, you are going to see some big changes in the
industry.
[/quote]

We’ve
ALWAYS had the positive duty to act in the best interests of the
client, due suitability, etc.What’s been missing, and has yet to be
resolved, is how the new requirement (or at least what seems to be a
requirement) of acting as a fiduciary. Being a fiduciary isn’t the only
way to act in a client’s interests, although that’s the way the term is
being bandied about.[/quote]


If you want to play word games, there are multiple ways to act in a clients sole best interest. If not, there is only one way.


I
have no illusions about this, the B/Ds will fight to create some kind
of "bubble" where the ethical standards applicable to a commision
account (caveat emptor) apply to a fee based arrangement.


My
guess is that the B/Ds will say that their job is to provide a platform
with the best execution, thus acting in the best interests of clients.
Having standards over the quality of advice etc would open up a huge
can of worms and endless litigation.


May 22, 2007 5:40 pm

these accounts were wrong to begin with. they were knee jerk reactions by wirehouse firms to deal with online competition.


the problem is brokers didn't place their most active trading clients in these accounts,  they placed their least active clients.


the longer im in this business the more i think paying for advice with commissions works best.   or use sma's.

May 22, 2007 9:23 pm

QUOTE=AllREIT]

mikebutler222:
AllREIT:

As a Registered Rep, you are an employee of "the firm" with a duty to act in the best interests of the firm at all times, subject to the limitations of NASD wrt to not harming clients. This is where the merrill lynch rule came from.


That’s about as self serving and cynical a way to describe the ML rule as has ever been stated. The “best interests of the firm at all times” line is a fiction you use with your clients as a sales pitch. You should know enough about the industry to know it’s untrue. The ML rule simply allowed fee-based brokerage accounts to avoid coming under the IAA of 1940 and continue to be regulated under the traditional brokerage rues.


Oh please. The ML rule enabled B/D's to evade the responsibilities that the IAA would have put on them and thier reps when dealing with fee based accounts.


The goal of the B/Ds was to create a business model that had all the flavor of fee based but just one calorie.


[/quote]


You’re as wrong here as you’ve been on this subject all along. The goal was to create a brokerage account that avoided the obvious conflict of interest in commission accounts and the then issue du joir of “churning”.


AllREIT:

That is what it has always been about. Creating a "safe space" for all sorts of shady activities. It's the exact same reason AMP and the B/Ds are creating a circus over at the CFP standards comittee over this exact issue.


Again you’re confused, there was nothing “shady” about it, in fact it began to end a shady practice. Now, the CFP and AMP fight, if you think that’s about business ethic as opposed to what it REALLY is, which is a turf battle on the “fee only” front, you’re even more in the dark about this industry than I had thought. In fact, the entire battle by the FIA against the ML rule was a turf battle to begin with. “Fee only” types hated that the “I won’t charge you commissions” sales line they had relied upon had been erased.



AllREIT:

Either you explicitly act in the best interests of clients, or you don't.


You don’t have to be a fiduciary to act in a client’s best interests and it’s just juvenile to pretend otherwise.



AllREIT:

Right now its unclear how the SEC will resolve this. Because if it turns out that going forwards brokers have a positive duty to act in the best interests of clients, you are going to see some big changes in the industry.


We’ve ALWAYS had the positive duty to act in the best interests of the client, due suitability, etc.What’s been missing, and has yet to be resolved, is how the new requirement (or at least what seems to be a requirement) of acting as a fiduciary. Being a fiduciary isn’t the only way to act in a client’s interests, although that’s the way the term is being bandied about.[/quote]


If you want to play word games, there are multiple ways to act in a clients sole best interest. If not, there is only one way. [/quote]


There’s no word games required. You simply have to understand the nature of the industry, which you proved from jump street that you don’t get.



At least you dropped all traces of your ridiculous claims that reps have a regulatory responsibility to act “in the best interests of the firm” and your ignorance over the various common situations in which firms ALREADY act under the aegis of the IAA of 1940.

May 22, 2007 9:24 pm
Vin Diesel:

the problem is brokers didn't place their most active trading clients in these accounts,  they placed their least active clients.



Now there's a theory I hadn't heard before....

May 22, 2007 9:25 pm

My take, from the point of view of a wirehouse RR, not an Indy, and I get this from my own independent reading, not from any propoganda that the firm has given me:


The court decision ruled that the SEC did not have the authority or power or whatever, to make an exception to the Investment Act for the B/D's. As a result the RR who offers a non discretionary wrap account, acts as, and takes the legal responsibility to act as a fidicuiary. We cannot do that. Fiduciary means that we have a responsibility to "put the clients interests first". This is in contrast to the RR;s responsibility to "recommend investments that are "suitable"".


So a RR can have investments A and B, with BOTH being suitable but A being a bit more expensive and paying more to the RR, thus being a bit more suitable. As a fiduciary, he must recommend B, or he has violated his fiduciary responsibility to the client. A RR can recommend either one since they are both "suitable"


Thats my understanding, I dont claim to be a rocket scientist on this, so be smart and dont attack me.


The SEC HAS NO LEWAY IN THIS, as it is a court ruling, and they must abide. What they have done is ask for relief in the form of 120 days for the affected parties to come up with another way. The wirehouses all have some form of account which would resolve this issue - a fee for advice account, vs a fee in lieu of commish account, and since its a fee for advice, with strict limits as to what can and cannot be done in these accounts, we can act as fiduciaries. However, some wirehouses have more fully developed this platform than others.


We'd all like to think that this is all BS, because we all always act in the best interest of the client. Most of us do. We all know that some dont. My opinion is that a lot of this is nothing more than the fee based planning world, i.e. FPA, etc, wanting to protect their territory


JMHO

May 22, 2007 9:27 pm

When I go back in my memory bank (small deposit base), I seem to recall that these accounts were a way for firms to generate predictable revenues in bear markets.

May 22, 2007 10:34 pm
mikebutler222:
Vin Diesel:

the problem is brokers didn't place their most
active trading clients in these accounts,  they placed their least
active clients.


Now there's a theory I hadn't heard before....





That's why NASD said the Fee-in-leiu accounts were unsuitable for most
clients. A commision account would be cheaper for buy-and-hold
investors.



IMHO they B/D's will come up with some kind of split account with one
level of comissions similar to a discount broker and over that a
"subscription" to investment advice.

May 23, 2007 10:51 am
AllREIT:
mikebutler222:
Vin Diesel:

the problem is brokers didn't place their most active trading clients in these accounts,  they placed their least active clients.


Now there's a theory I hadn't heard before....




That's why NASD said the Fee-in-leiu accounts were unsuitable for most clients.



You got a source for that?

May 23, 2007 10:58 am

Fiduciary means that we have a responsibility to "put the clients interests first". This is in contrast to the RR;s responsibility to "recommend investments that are "suitable"".

So a RR can have investments A and B, with BOTH being suitable but A being a bit more expensive and paying more to the RR, thus being a bit more suitable. As a fiduciary, he must recommend B, or he has violated his fiduciary responsibility to the client. A RR can recommend either one since they are both "suitable"


Although it seems like splitting hairs in some respects; this is my take on the issue too. 

May 23, 2007 11:37 am
mikebutler222:
AllREIT:
mikebutler222:
Vin Diesel:

the problem is brokers didn't place their most
active trading clients in these accounts,  they placed their least
active clients.


Now there's a theory I hadn't heard before....



That's why NASD said the Fee-in-leiu accounts were unsuitable for most clients.





You got a source for that?





As early as 2003 NASD was on to this problem.



http://www.nasd.com/web/groups/rulesregs/documents/notice_t o_members/nasdw_003079.pdf



This industry moves very slowly on things that might be profitable to it.