Ahead of Reg BI, UBS to offer single mutual fund share class in brokerage

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UBS plans to introduce a simplified mutual fund share class offering in brokerage accounts that will lower pricing for some clients and better align the firm’s platform with the SEC’s Regulation Best Interest.

The change indicates how wealth management firms are adapting to the SEC’s rule, which takes effect in June 2020. Reg BI updates standards of conduct for brokers and advisors by requiring greater transparency and mitigation of conflicts of interest.

The policy shift — which leaves advisor compensation untouched, according to UBS — also come on the heels of the firm’s move to cut some fees on separately managed accounts.

“This is an opportunity to deliver something that is clearly in the client’s best interest: lower costs,” says Jim Langham, Americas head of investment products and advisory programs at UBS Global Wealth Management. “And [it] helps us eliminate conflicts of interest and meet the regulatory requirements of Reg BI.”

The single share class has no front-end loads, back-end loads or 12b-1 fees, according to UBS. It will be the only share class offered in brokerage accounts. Client assets in existing share classes will remain as is, but no future purchases in those share classes will be permitted, according to the firm.

The changes do not affect the firm’s advisory programs, which already use a single share class.

“When you offer the same [share class] pricing across brokerage and advisory then it really is more of a conversation about, ‘what are your goals and needs?,’” says Traci Simpson, Americas head of mutual funds at UBS Global Wealth Management.

The move carries weight due to the firm’s enormous size. UBS recently reported invested assets of $1.3 trillion for the third quarter.

Cutting 12b-1 fees may hurt company revenue, but executives emphasized that the move is a positive for both clients and UBS.

The 12b-1 fees are compensable and advisors, as well as the firm, receive a portion of them, Langham says. “But the vast majority of our sales flows are in advisory,” he adds.

About one-quarter of mutual fund sales happen on the brokerage side of the business; the rest are in advisory accounts, according to executives.

“Any time you do something in the best interest of the client, you can expect to do more business in total,” he says.

Regulators and consumer advocates have upped scrutiny of 12b-1 fees in recent years, though eliminating them has proven easier said than done.

UBS’s policy changes mirror past efforts to align the firm’s policies with the Department of Labor’s now-defunct fiduciary rule. That regulation, which governed retirement accounts, prompted widespread industry efforts to eliminate conflicts of interest and adapt platforms and fund offerings, often by reducing fees and cutting the number of funds available to clients and advisors.

Some wealth management firms had said they would stop offering commission-based retirement accounts in order to comply with the Labor Department’s rule. UBS opted to change how it compensated its more than 6,000 financial advisors. After the regulation was vacated by a federal appeals court, UBS reverted to its pre-fiduciary rule compensation structure.

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