Cresap said he “hopes” the industry is able to retain a commission-based model “because it is my understanding that fee-based clients pay more. It is an important option that we don’t want to take away from clients. Everything I’ve seen is pushing people toward fee base. That is not always cheaper for clients.”
Molinari said Commonwealth’s assets are approximately 80% fee-based, “but it is important to preserve both brokerage and advisory services.”
To be on the safe side of industry and regulatory trends, broker-dealer executives said they will be applying pressure on reps to get their Series 65 license so they can offer fee-based advisory accounts by June 30.
Ninety-eight percent are already investment advisor reps. The rest have until June 30 to take series 65 and become investment advisor reps with Commonwealth,” Molinari said.
“Either take the Series 65 before June 30 or you may not use the advisor term. That’s pretty clear,” Cresap said.
Edward Jones’s Bee said: “We kind of forced everyone before [to take Series 65 exam] to use the term financial advisor, so we won’t have the same issue.”
“Sounds like it’s good time for Series 65 prep firms,” added Joseph Savage, Finra’s Vice President and Counsel in the Office of Regulatory Analysis.
Savage asked the executives how they anticipate handling disclosure in situations where investors have both commission- and fee-based accounts.
“I think this is one of the most difficult aspects of rule,” Bee said. “It allows for two models and many, many, many clients have both. We are building a process to reinforce with our financial advisors to have these conversations with customers, to discuss what you’re doing in and reinforce fees and costs with accounts.”
Bee said the two toughest conflict of interest discussions that brokers will need to have with customers are around differential compensation and the fact that the more trades a broker makes the more she or he will be compensation.