By Hal M. Bundrick
NEW YORK (MainStreet) Traditional brokerage firms, like Merrill Lynch and Morgan Stanley, are facing greater challenges to keep clients, and brokers, as the industry braces for a tectonic shift. These stalwarts of the business, traditionally called wire houses, are looking for ways to remain competitive as a higher code of customer care, the fiduciary standard, becomes more prevalent. As one industry observer notes, brokerage firms have discouraged their advisors to act as fiduciaries because "many are not competent enough" and doing so would expose the firm to significant liability.
"There always seem to be certain events or cycles where some experts say that wire houses will not be able to compete against RIAs (registered investment advisors) and independent advisors because of their more restrictive model," writes Fred Barstein, on NAPA Net.
"That conversation arose after the imposition of 408(b)(2), which requires advisors to disclose in writing whether or not they are acting as a fiduciary for the services they are rendering and the associated fees." Barstein is the founder and executive director of The Retirement Advisor University, and editor in chief of the National Association of Plan Advisors website.
The Department of Labor as well as the Securities and Exchange Commission are working to codify the fiduciary standard.
While wire house brokers serving retail customers are seldom allowed to "put the client's interests first" under the mandate of a fiduciary standard -- serving to a less-stringent "suitability standard" -- some brokerage advisors working with company-sponsored retirement plans are permitted to offer fiduciary advice.