In what could be a sign of the fiduciary rule's staying power despite Donald Trump's election as president, JPMorgan Chase said it plans to cut commissions for advisers on clients’ retirement accounts when phase-in of the rule is set to begin in April.
"We believe the intention of the new rule is sound: always do what's in the best interest of the client," bank spokesman Mike Fusco said. "We understand implicitly what that means, as we've been a fiduciary for the last 175 years."
Given Trump’s views on regulation, experts have said his election could kill the Department of Labor's rule, which compels advisers to put their clients' financial interests before their own when managing their retirement accounts. The rule is intended to cut down on the estimated $17 billion that Americans lose annually in those accounts due to conflicted advice, much of that driven by commission sales.
The rule, set to be phased in starting April 10, could be delayed or halted when Trump’s new labor secretary takes office, experts say. Trump economic adviser Anthony Scaramucci has said Trump will repeal it.
'That's No Easy Feat'
However, the JPMorgan decision, announced Wednesday, is an indication many in the industry believe the rule isn't going away, said Tim Welsh, founder of the wealth management consulting firm Nexus Strategy.
"I totally disagree that Trump will kill it. It's too difficult to do," Welsh said. "The only way the rule gets overturned is by an act of Congress and, as we know, that is no easy feat [since] Trump would have to sign off on it and there's no guarantee he's going to do anything the GOP wants because they abandoned him. In his hour of need, they said, 'You're not our guy.' "
Despite JPMorgan's move, Brian Hamburger, founder of MarketCounsel and the Hamburger Law Firm, said the rule will never go into effect with Trump in the White House, the obstacles to stopping it notwithstanding.
"This election was a huge blow to a government-mandated expansion of fiduciary duty," Hamburger said.
On a practical note, JPMorgan's choice does demonstrate that large brokerages are figuring out how to comply with the rule while making it work for them financially, Welsh said.
Merrill Lynch has launched an advertising campaign touting its decision to end commissions on retirement accounts; Commonwealth Financial Network, the fourth-largest independent broker-dealer, made a similar move to cut commissions on qualified accounts. LPL Financial, the nation's largest independent broker-dealer, and the regional broker-dealer Edward Jones both have made substantial cuts in their lines of business to come into compliance with the rule.
'Eliminate' the Risk
"Big bank broker-dealers are examining their risk," Welsh said, referring to JPMorgan Chase as well as Merrill, which is part of Bank of America. "The law of large numbers says 1% to 2% of their advisers will be bad actors. Do they want to manage to the lowest denominator, or do you just eliminate it? And, if you do move clients that have smaller or medium accounts to fees, the research shows that you make more money. So, in one fell swoop, you lower your risk and you increase your profit."
Starting in April, JPMorgan will offer clients of Chase Wealth Management, J.P. Morgan Securities and Chase Private Bank "two clear and simple options to help them meet their retirement goals under the new rule," Fusco said.
They either can receive advice through a managed account for a flat fee, or transition to a self-directed account without advice, he said.
"This reflects how our clients are increasingly choosing to do business with us," Fusco said. "Demand for professional advice from JPMorgan has never been stronger."
He added that, "Overall, brokerage IRAs represent a very small portion of our clients' assets." Of the $1.1 trillion in client assets at J.P. Morgan Wealth Management & Investment Solutions, only 5% is held in brokerage retirement accounts.