* Brokers brace for changes in advising retirement plans
* DOL would extend ban on outside commissions
* Merrill and Morgan Stanley take different approaches
By Helen Kearney
NEW YORK, March 1 Major U.S. brokerage firms
are taking different tacks in preparing brokers for expected
new rules from the Department of Labor that will constrict
their ability to advise companies on retirement plans.
Proposed rules being discussed this week would subject many
current activities of brokers and investment consultants to a
fiduciary standard of care, as defined under the Employee
Retirement Income Security Act (ERISA).
The standard would limit brokers' ability to recommend
their firms' proprietary investment products to employers and
prohibit them from collecting commissions from product
sponsors. Brokers also are concerned about a DOL regulation
scheduled to take effect next January that requires them to
disclose their conflicts of interest to the plan sponsors.
"This is a game changer, it's hugely significant," Marcia
Wagner, a Boston-based attorney at The Wagner Law Group said of
the new rules. "How can you tell this to your client and keep
Firms unwilling to give up in-house sales of proprietary
products and brokers loathe to forego commissions would have to
protect themselves with even bolder disclosures on plan
documents that could steer away clients, she said.
MORGAN STANLEY VS. MERRILL LYNCH
Brokerage firms that do not directly provide recordkeeping
services to sponsors of 401(k) and other retirement plans are
more likely than others to acquiesce to having their brokers
come under a fiduciary standard.
That's why Morgan Stanley (MS.N) and UBS AG's Wealth
Management Americas unit UBSN.VX (UBS.N) are training brokers
about the behavioral changes a fiduciary standard will require.
Morgan Stanley is the biggest brokerage firm by number of
brokers, and UBS the fourth largest.
Bank of America Corp's (BAC.N) Merrill Lynch and Wells
Fargo & Co's (WFC.N)broker-dealers, which are affiliated with
banks that aggressively sell recordkeeping and other retirement
plan services through brokers, have no such programs.
Even firms that encourage adaptation to a fiduciary
standard limit their programs to their top retirement plan
producers. About 1,000 of UBS's 7,000 U.S. brokers have gone
through the fiduciary program launched in mid-2008, and they
oversee just under 20 percent of the $24 billion in plan assets
that brokers service.
A similarly small fraction of Morgan Stanley's 18,000
brokers have completed its fiduciary program, said Edward
O'Connor, the firm's head of retirement services. Within two or
three years, however, he expects a majority of brokers active
in the plan market to don the fiduciary mantle.
"This is what employers want," O'Connor said. "They are
more willing to a pay a fee for advice."
One sticking point: Most U.S. brokers work with small
companies and professional practices that pay slender fees, and
may not be willing to give up outside commissions.
Brokers typically collect 50 basis points, or one half of
one percent of the assets in plans with less than $1 million in
assets, said Jason Roberts, chief executive of Los
Angeles-based consulting firm Pension Resources Institute.
A wide-ranging group of retirement plan service providers
and industry groups have told the Labor Department that brokers
who give up commissions may be forced to raise their fees to
levels that small companies cannot afford.
Some brokers unwilling or unable to become fiduciaries also
fear that the quality of advice they can give will deteriorate
under the DOL's new restrictions.
"The broker would be sitting across from the plan sponsor,
saying 'Here are 20 mutual funds, but I don't know if they are
good for you,'" said Fred Reish, chairman of the employee
benefits practice at law firm Reish & Reicher in Los Angeles.
"They are never going to say that."
Merrill Lynch and Wells Fargo contend that brokers can
continue working with plan clients without accepting the
fiduciary standard of care. Third-party plan administrators can
often help plans make selections, they say.
Wells Fargo has no plans to expand fiduciary training
beyond some 75 brokers in its 15,000, said Wayne Morris, head
of the company's institutional contract program.
BABY BOOMER DEMOGRAPHICS
Such reluctance is understandable given Baby Boomer
demographics that have turbo-charged sales of funds and other
products to 401(k) and other retirement plans at large banks
such as Wells and Bank of America.
"Why would you take your top retirement plan advisers and
prevent them from selling your platform?" said Reish.
Wells Fargo added $5.6 billion in 401(k) plan assets in
2010, more than double the $2.3 billion it added in 2009. Bank
of America's managed assets grew by $4.5 billion last year,
almost four times the $1.2 billion of new assets gleaned in
Fred Barstein, who runs a retirement accreditation program
at the University of California, Los Angeles, said brokers who
have proven their value by increasing plan participation among
employees have little to fear from new DOL rules.
"It's not like advisers will walk in, say they're not a
fiduciary and all their clients will leave," said Barstein.
Don't tell that to Stephen Wilt.
After 20 years at Merrill Lynch, he quit in 2009 to become
a registered investment adviser operating under a fiduciary
standard at Akron, Ohio-based Captrust Financial Advisors.
"I had clients asking me if I could be a co-fiduciary with
them and I couldn't," said Wilt, who works with 29 retirement
plans with about $2 billion in assets. "I thought we were at
risk of losing them."
(Reporting by Helen Kearney, editing by Jed Horowitz)