The fiduciary rule has transformed the way wirehouses, broker-dealers and banks do business with their retirement clients.

While the Department of Labor’s regulation has roiled the entire industry, firms including Merrill Lynch, JPMorgan Chase and Ameriprise have made some of the most far-reaching and costly changes.

Financial Planning analyzed 13 top firms’ compliance plans and public statements about the rule. Certain elements are slated to go into effect June 9, with the rest Jan. 1.

All firms that submitted a comment to the agency called for delaying the rule, if not for outright repeal. Many top executives publicly supported the spirit of the regulation. Yet, few, if any, said they backed the initial April deadline or the subsequent June date (a few called for additional delays).

Privately, though, firms spent tens of millions of dollars altering their commissions and fees and preparing to qualify for the rule’s best interest contract exemption.

President Trump’s administration may well push back the full implementation date or even repeal the rule. Despite the uncertainty, wirehouses, broker-dealers and banks alike pronounced themselves ready to deal with any outcome that may take shape in coming months.

To learn more about each firm’s compliance plans and public statements about the rule, click through our slideshow.
Merrill Lynch
Merrill Lynch revised an earlier plan to phase out commission-based retirement accounts as part of its fiduciary rule compliance. The pledge had set the wirehouse apart from its competitors, but the Trump administration’s actions prompted executives to reconsider.

“We have analyzed the limited situations where recommending a fee-based arrangement might not be in a client's best interest and have considered alternatives [to the firm's Investment Advisory Program] for these situations,” Merrill head Andy Sieg said in a memo to employees sent in May.

The New York-based firm and Commonwealth Financial Network vowed to end commission-based retirement plans in the fall, with the IBD following Merrill’s lead. Nearly every other firm indicated they would employ the rule’s exemptions to keep offering such plans.

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Ameriprise financial bloomberg
Ameriprise invested tens of millions of dollars adjusting to the new regulation to compete with rivals while calling on the Labor Department to rescind it. The firm spent $30 million on fiduciary compliance in 2016, according to its annual report.

Preparations for changes such as phasing out 12b-1 fees in advisory accounts cost the firm $11 million in the fourth quarter alone, CEO Jim Cracchiolo said in the firm’s first quarter earnings call.

"Clearly, the situation is evolving with the new administration," Cracchiolo said. "We are remaining flexible. If the rule is delayed then we will adjust accordingly. However, we are making some changes that we believe will situate us with where the industry is going."

The Minneapolis-based firm also filed a comment with the Labor Department advocating for a delay in the rule to “allow advisers to continue to have the clarity and confidence necessary to provide the most prudent investment advice while awaiting the further guidance from the department that was requested by the presidential memo.”

Ameriprise later submitted another one urging withdrawal in favor of “one uniform best interest standard across a client’s entire portfolio.”

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U.S. Bank signage
Signage is displayed on the exterior of a U.S. Bank branch in Provo, Utah, U.S., on Tuesday, July 14, 2009. U.S. Bancorp, parent company of U.S. Bank, will report second quarter results on July 22. Photographer: George Frey/Bloomberg
U.S. Bank
The rule has led to changes in the makeup of U.S. Bank’s workforce. The firm's regulatory and compliance staff has grown to 10% of its overall headcount from 5% in 2014, according to CEO Andy Cecere.

Costs linked to the fiduciary rule helped boost the firm’s noninterest expenses by 6.9% in the fourth quarter of 2016, executives with the bank have said.

"We're investing heavily into it," U.S. Bank Chairman Richard Davis said.

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LPL Financial Building
LPL Financial has disclosed steep compliance expenses and changes to its investment product lineup in response to what its CEO calls the “disruption” posed by the rule.

The nation’s largest IBD spent $34 million on regulatory compliance in 2015 and $17 million in 2016, which was partly attributable to adjustments made in preparation for the new regulatory environment.

“We expect the rule to create disruption that will lead to movement of both advisers and assets in the coming months and years,” CEO Dan Arnold said during the company’s first quarter earnings call.

Arnold said LPL is “on track” to make all adjustments required under the fiduciary rule.

LPL has slashed fees in its Model Wealth Portfolios and created a new menu tool allowing advisers to choose among mutual fund families, among other changes.

The political wrangling around the fate of the rule will not affect the company’s plans, according to Arnold.

“We will continue to move forward with many of our previously announced activities and policy changes that we believe are beneficial for advisors and their clients, regardless of the ultimate outcome of the DoL fiduciary rule,” Arnold said in the firm’s annual report.

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Morgan Stanley agreed to sell a business that administers its alternative investment feeder funds to iCapital, a financial-technology firm run by a former Goldman Sachs banker.
Morgan Stanley signage is displayed on the exterior of the company's headquarters in New York, U.S., on Tuesday, July 12, 2016. Morgan Stanley is scheduled to release earnings figures on July 20. Photographer: Eric Thayer/Bloomberg
Morgan Stanley
The new regulation has also wrought changes in the recruiting environment, particularly among the wirehouses.

The rule has “probably” harmed Morgan Stanley’s recruiting, CFO Jonathan Pruzan told analysts in the firm’s earnings call for the first quarter. Morgan Stanley, along with other wirehouses, have cut the size of transition deals in response to regulatory guidance from the Labor Department. They've also pledged to reduce overall recruiting efforts.

Meanwhile, Morgan Stanley wealth management co-heads Shelley O’Connor and Andy Saperstein notified employees in January that the firm would still proceed with “many” of the changes it outlined in response to the rule.

The shifts included cuts to commissions for stock and ETF trades, curbs on conflicts of interest with third-party managers and more disclosures to clients.

“With or without the rule, we fundamentally believe that serving our clients well and continuing to lead the industry forward require that we provide an increasingly higher standard of care for our clients,” O’Connor and Saperstein said in the memo to employees.

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Like other firms, Stifel will use both the BIC and principal transaction exemptions to keep offering commission-based accounts to IRA clients and others covered by the rule, according to its 2016 annual report.

In addition, the St. Louis-based firm last year sold Sterne Agee’s clearing and independent adviser business for $50 million after buying the overall firm for $150 million. Stifel lost about 540 independent advisers managing $11 billion in assets in the sale.

"I think the DoL rule has a disproportionate impact on the independent business, and that affected our decision-making," CEO Ron Kruszewski later said of the transaction.

Separately, Kruszewski also called on the Labor Department to delay implementation beyond the June deadline. The rule is “not consistent with the administration’s stated priorities” and must be pushed back an extra six months, he argued in an April comment.

“In our own experience, we will be forced to turn away tens of thousands of accounts belonging to small investors,” Kruszewski wrote. “Likewise, we will be forced to reduce our product and service offerings under the rule.”

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Jamie Dimon, CEO of JPMorgan Chase, speaks during a Business Roundtable in Washington, D.C., on June 7, 2017 BLOOMBERG NEWS
Jamie Dimon, chief executive officer of JPMorgan Chase & Co., speaks during a Business Roundtable panel in Washington, D.C., U.S., on Wednesday, June 7, 2017. The Business Roundtable panel discussed the U.S. skills gap and its importance in solving the problem to spur economic growth and individual prosperity. Photographer: Andrew Harrer/Bloomberg
JPMorgan Chase
JPMorgan Chase paused part of its fiduciary plans after the Trump administration pushed back the rule’s implementation date. CEO Jamie Dimon had met with President Trump in a business roundtable on the day Trump ordered a review of the regulation.

The New York-based bank stalled its plan to transfer some of its wealth-management clients to a self-directed platform. As the firm observes the Trump administration’s actions around the rule, JPMorgan will hold off on the shift from advisers to the self-directed system.

“Your financial adviser can continue to provide you with investment guidance and assist with any service requests you may have on this account,” the firm told clients in an April message.

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Wells Fargo
Wells Fargo filed the most detailed and, at 174 pages, the most lengthy comment of any major firm to the Labor Department about the rule. The firm asked the agency to rescind or revise the rule and to work instead on a universal fiduciary standard with the SEC.

David Carroll, the San Francisco-based bank's head of wealth and investment management, cited the criteria for the further study of the rule outlined by President Trump in February.

“We do not believe the rule will achieve the Presidential memorandum’s stated priority of facilitating Americans’ ‘ability to save for retirement and build the individual wealth necessary to afford typical lifetime expenses,’” Carroll said.

Wells Fargo sees the rule as “overly broad,” the BIC exemption as “impracticable” and the full implementation deadline of Jan. 1, 2018, as “impossible,” according to the firm’s letter.

The debate around the rule has presented challenges to all firms, Brand Meyer, the 46-year industry veteran tasked with supervising Wells Fargo Advisors’ compliance with the rule, said in a panel at SIFMA’s Private Client Conference.

“In my long career I have never seen anything play out quite like this. It's zigged and zagged," Meyer said.

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Department of Labor
Advisor Group
Advisor Group rolled out major shifts in its platforms and pricing to comply with the fiduciary rule, even as the firm called for a six-month delay. The Phoenix-based firm cut transaction charges by 50% and slashed account minimums on its Genesis platform by 89%, alongside other shifts.

The company, which is the parent of four independent broker-dealers with more than 5,000 advisers, spent “untold numbers of hours and dollars” preparing for the rule, according to Advisor Group Chairwoman Valerie Brown.

"Regardless of whether the rule goes into effect, we will be operating in the fiduciary era," she says.

Advisor Group weighed in on the Labor Department's then-proposed 60-day delay in March, with executives saying the firm “strongly supports” the delay but prefers a longer one. The firm was purposely waiting to inform clients of the impact of the rule on their accounts, according to the letter.

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The license obtained by UBS allows the firm to manage assets for institutional and high-net-worth investors in the world’s second-largest economy for the first time.
A visitor enters the UBS Group AG's headquarters in Zurich, Switzerland, on Thursday, July 23, 2015. UBS Group AG and Morgan Stanley increased the assets they manage for the world's wealthiest people to more than $2 trillion for the first time, according to a study. Photographer: Chris Ratcliffe/Bloomberg
UBS revamped adviser compensation just days before the fiduciary rule was set to go into effect. The wirehouse will join most other firms in offering commission-based retirement accounts through the rule’s best interest contract exemption.

"Different firms are making different decisions," says UBS Wealth Management Americas President Tom Naratil. "We've made the choice that we feel is the most client centric and adviser focused."

Executives with the Zurich, Switzerland-based firm submitted two letters to the DoL expressing support for delaying in the rule. The SEC rather than the DoL should lead the creation of any fiduciary standard, according to UBS’ second letter to the agency.

“A comprehensive retirement discussion needs to address both accounts covered by the rule and accounts that are not,” the letter said. The rule has an “expansive definition of who is considered a fiduciary” and “narrow and unduly burdensome exemptions,” according to UBS.

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Raymond James
Raymond James plans to use both the best interest contract and principal transaction exemptions to continue offering commission-based retirement accounts. The St. Petersburg, Florida-based firm outlined the changes in its 2016 annual report.

“We are evaluating the impact of the DoL rule on our business,” the report said. The exemptions for Raymond James’ qualifying accounts, particularly its IRAs, will lead to “increased legal, compliance and information technology costs,” according to the report.

The firm is also working to negotiate new commissions and fee structures with its mutual fund partners, according to a recent presentation for analysts. The firm already reduced both fees and commissions in its annuity and UIT products.

“Changes to adviser payouts, client pricing, and support from product providers will be required to offset a portion of the increased costs associated with complying with the DoL fiduciary rule," according to the presentation.

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Department of Labor. man walks in front of building by Bloomberg News
Ladenburg Thalmann
Ladenburg Thalmann joined other broker-dealers in calling for the DoL to push the rule back again past the June deadline while working to comply with it. Executives sent four separate letters to the Labor Department as the Trump administration examined the rule.

The firm disclosed in its 2016 annual report that it plans to take advantage of the BIC and principal transactions exemptions. Executives, who expect the compliance to harm profits, are closely watching developments around the rule, according to the report.

“The DoL rule could be further delayed or revised,” the report said. “However, until there is some definitive action impacting the DoL Rule, we intend to continue to pursue necessary changes.”

To read more, click here.
Cetera headquarters
Cetera Financial Group
Cetera supported the initial 60-day delay from the initial April implementation date, according to comments submitted to the DoL by the firm. President Adam Antoniades went even further in his March 14 letter, asking for a six-month delay.

“Over the past several months, we have taken a number of steps to develop new advice and compensation models that we believe will more fully align our interests with those of our customers,” Antoniades wrote.

“That being said, we believe that parts of the regulation could be better designed to protect the interests of retirement savers while assuring them the greatest amount of flexibility in gaining access to professional advice in ways that best serve their interests.”

Meanwhile, Cetera Financial Group CEO Robert Moore has revealed some literal client-facing changes: facial recognition software. The tool, launched days before the rule was set to go into effect, analyzes client’s risk tolerance and habits.

“We know a large percentage of communication is non-verbal,” Moore says. “Advisers will have a tool that helps hone in on that, and will help utilize that in informing all kinds of follow-up conversations, dialogue we can use in the best interest of those clients.”

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