The Good:
Edward Jones announced last Thursday that it would create a “grandfathered account” to serve existing IRAs with investments acquired before the April 2017 compliance date, saying that “investments in existing IRAs, as well as systematic investment plans that are in place before April 10 of next year can continue as long as they remain in the best interest of your client.” However, new investment purchases “won’t be allowed in a grandfathered account after the rules become effective with the exception of mutual fund exchanges, variable annuity subaccount reallocations, and systematic investment plans agreed to prior to implementation.” The firm also said they are creating a transaction-based IRA option using the BICE. Initially, the IRA will include stocks, bonds, CDs and variable annuities, but initially the IRA will not include exchange-traded funds, unit investment trusts or mutual funds. The firm was quoted as saying that “Right now, because there is such pricing variability within and between mutual funds, it is difficult to align mutual funds with the requirements” of BICE. It is reported that Edward Jones believes that the mutual fund industry will need to align around common pricing and common structures in order to meet the Rule requirements.
The Bad:
Both Ameriprise and LPL said recently that they’ll prohibit sales of A-share mutual funds and bar advisors from collecting 12b-1 fees in fee-based advisory accounts (most firms that have been in the fee based advice business for years, like Morgan Stanley, Merrill Lynch and UBS, did that years ago.) At least LPL and Ameriprise won’t be double dipping on fees any more. LPL and Ameriprise Brokers will be able to sell A shares and get 12b-1s, however, in commission-based accounts if they use the BICE.
The Ugly:
Ameriprise said in its most recent earnings report that it had spent more than $11 million this year to comply with the rule and announced that it had devoted about 400 people to compliance efforts and has increased training for staffers. (Seriously? 400 compliance people. Imagine that staff meeting.)
Stay tuned, it will probably get worse before it gets better as some firms take a strategic “kneejerk “ reaction to Rule compliance.