WFC Wells Fargo and Company

By Michael Wursthorn 

Wells Fargo & Co. will continue to allow retirement savers who work with its brokerage arm to pay commissions for trades, as Wall Street brokerages move ahead with plans to comply with new conflict-of-interest rules on retirement accounts despite uncertainty surrounding their fate.

The Labor Department's so-called fiduciary rule, which is set to take effect in April, aims to eliminate conflicts from retirement advice and requires brokers to act in the best interests of their clients. The rule's fate has become unclear as Republicans in Congress and the incoming Trump administration have made it clear that Obama-era regulations are under review for repeal or replacement.

The San Francisco bank said that while it is planning for a variety of different scenarios surrounding the fate of the rule, it is preparing as if the rule will be implemented in April as scheduled. "While there is a great deal of speculation in the media on how the election results will affect the DOL rule, none of us can say with certainty what will actually happen," Wells Fargo said in a memorandum, reviewed by The Wall Street Journal, to its more than 15,000 brokers on Thursday.

Wells Fargo's brokerage arm, Wells Fargo Advisors, which has more $1.5 trillion in total client assets, said it would allow its brokers to continue offering individual retirement accounts that charge investors per-transaction commissions, an approach toward compliance similar to some brokerages such as Morgan Stanley and Edward Jones.

However, Wells clients in those accounts after April will likely have a slimmer menu of investment products to choose from, people with knowledge of the matter said, although details weren't immediately available.

Firms still offering commission-based IRAs have had to drop some investment products from them to comply with some restrictions within the rule. Edward Jones, for example, won't allow retirement savers who pay a commission to buy mutual funds next year, while some alternative investments won't be immediately available in commission-based IRAs at Morgan Stanley.

The approach to allow commission offerings differs from rivals Bank of America Corp.'s Merrill Lynch and J.P. Morgan Chase & Co., among others. Merrill and J.P. Morgan said in recent months that they would ditch the industry's traditional commission-based sales model for retirement accounts and will effectively offer only IRAs that charge a fee based on a percentage of assets starting next year.

The retirement rules -- which researcher Morningstar Inc. predicts will affect about $3 trillion of commission-based retirement assets in the U.S. -- bring a host of changes, including how investors pay for retirement advice, the elimination of compensation incentives for brokers and higher investment minimums.

But since Republicans took the White House and retained control of Congress, firms now face the dizzying possibility of an outright dismantling of the rule.

Congressional Republicans opposing the rule have seized on Donald Trump's surprise presidential win as a chance to stop the regulations ahead of their implementation. Rep. Jeb Hensarling, the Texas Republican who heads the House Financial Services Committee, and Rep. Ann Wagner (R., Mo.), who has been one of the most vocal opponents of the rule, have both said their party will renew the fight to halt it next year.

Republicans challenging the rule have said it would cut small retirement savers off from affordable financial advice. A recent survey by analytics firm CoreData Research of 552 financial advisers in the U.S. found that 71% plan to no longer service some smaller investors because of the rule.

Wells Fargo and other brokerages are moving ahead with implementation despite the uncertainty. But even if the rule is shelved, certain aspects of it, such as heightened oversight of retirement accounts, will continue to move forward at Wells Fargo, people familiar with the matter said.

For investors, the rule's halt may not be that apparent if firms choose to keep some of the changes they've already made or planned. Some companies will be able to implement the rule's higher standard of care without the costly compliance requirements, said Kent Mason, a partner at law firm Davis & Harman LLP who focuses on retirement.

"But people may have also lost the option of choice," Mr. Mason added, referring to some firms' decision to no longer offer commission-based IRAs. "The legacy of the rule may be less access [for small savers] and less choice."

Write to Michael Wursthorn at Michael.Wursthorn@wsj.com

(END) Dow Jones Newswires

December 01, 2016 16:33 ET (21:33 GMT)

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