LPL Financial has announced broad-based price drops on some of its services to help advisors comply with an anticipated fiduciary rule expected this month from the Department of Labor.
"We … believe that retirement investors will continue to benefit from a brokerage relationship," LPL's President Dan Arnold said in a statement, "if these relationships can be supported under the DoL rule."
Some experts, including Morningstar researchers, have speculated that the rule would amount to a de-facto ban on the commission sales that come with brokerage accounts.
For now, LPL is betting it won't.
WHAT THE DOL 'INTENDED'
At least one observer sees the move as early evidence that the DoL's fiduciary movement is having the desired effect.
"This pricing move by LPL is a prime example of what the DoL intended with the fiduciary rule: to eliminate excess fees and provide the benefits to clients," says industry consultant Tim Welsh of Nexus Strategy.
"No one reduces prices unless they have to, so this has to be a preemptive move to stave off embarrassment later," Welsh adds. "In this case, it appears that LPL knows that [its] multi-fee-laden managed account and mutual fund account structures would not stand up to fiduciary scrutiny. So, instead of being fined later, they are making the prudent move to reduce costs now."
LPL disagrees with this and other assessments by Welsh, its spokesman Brett Weinberg wrote in an email.
"This move is about positioning both LPL and our advisors for growth and increased market share, while offering choice and flexibility to serve a range of investors seeking both ongoing and occasional advice," Weinberg wrote.
SOME PRICES DROP BY 30%
The country's largest independent broker-dealer will drop prices on its centrally managed platforms and institute further reductions in prices on its model wealth portfolios next year. It had already eliminated the IRA maintenance fees on the portfolios earlier this year.
"The change is expected to lower the total cost of accessing quality financial advice for investors in some cases by nearly 30% compared to current pricing," according to an LPL statement.
That amount, 30%, happens to be the same percentage by which the Morningstar authors predicted IRA profit margins could contract industry wide.
At LPL, pricing on Optimum Market Portfolios will drop from $15,000 to $10,000 later this year, following earlier fee reductions for the investment products, the company says.
In anticipation of further operational requirements, LPL also says it will introduce a simplified mutual fund-only brokerage IRA offering to support the continued use of mutual funds in a brokerage relationship as an option for IRA business.
'VERY STRATEGIC MOVE'
"We are proud to use our size and scale as a market leader to further strengthen the transparency and value LPL provides to investors and the advisors who serve them," Arnold said in the release.
Indeed, Welsh thinks LPL's move will reverberate through the industry.
"Smaller players without LPL's scale won't be able to follow [suit], setting them up for further consolidation or going out of business," Welsh says. "Very strategic move for them to rip the Bandaid-off and take their medicine now, which will force other IBDs to have to do the same."
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