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President Obama Makes Remarks To AARP in Washington
President Barack Obama makes remarks as U.S. Sen. Elizabeth Warren and Labor Secretary Tom Perez listen at the AARP, February 23, 2015 in Washington, DC. Obama joined AARP and members of the "Save Our Retire" coalition in efforts to protect retirement savings from bad investment advice.
Mike Theiler/Pool—Getty Images

More stress was the last thing Judith Hamill needed. She was already trying to sell a house, taking care of her beloved horse’s hospitalization, and coping with her stepmother’s death. Then, in early June, the North Carolina native received what she considered a surprising letter from her longtime brokerage firm.

The letter was prompted largely by a new regulation that was set to take effect June 9, 2017. Called the fiduciary rule, it was seen as the biggest investor reform in a generation, and was widely welcomed by consumer advocates. At its core, the rule requires all financial advisors working with retirement investments to act in their clients’ best interests—a seemingly innocuous mandate that has thrown the financial industry into turmoil.

In theory, the fiduciary rule was supposed to be a win for consumers. But political change in Washington has hobbled the rule, and big financial advice firms have scrambled to comply with what has become a shifting regulatory landscape. As a result, some investors have gotten caught in the cross draft: Pushed into new types of accounts, they face a complex set of changes fraught with financial risk.

That’s what happened to Hamill, 68. The Merrill Lynch letter arrived just days before the rule was set to take effect on June 9. She saw two main options. She could keep her existing commission-based accounts—a brokerage account and a Roth IRA—exactly as they were, but she would be unable to make any changes inside the Roth going forward. Or she could shift her Roth into a different account, where she would pay a yearly fee and have an advisor actively manage her retirement assets. (A spokeswoman for Merrill Lynch says the first communications of the account changes were sent in 2016.)

Hamill phoned her broker’s office to find out more. After a few conversations, she confirmed that her annual fee, if she switched to the new account, would be 1% of assets.

Illustration by Ryan Snook for Money

Such fees are supposed to pay advisors for time they spend managing investments and helping clients with planning—work for which they were previously compensated by mutual fund commission. Those commissions caused some of the industry’s conflicts of interest; under earlier rules, advisors weighing two similar funds were free to choose the one that offered them a higher payout, as long as the fund was “suitable” for the client. (The White House’s Council of Economic Advisors estimated in 2015 that such conflicted advice cost American investors $17 billion a year.)

But Hamill didn’t want to pay even a 1% fee. “It is outrageous to inflict these kinds of charges on retirement accounts,” she says. “Since I have not traded an issue in the Roth in over three years, the additional cost of making it a ‘managed’ account would have been thousands of dollars.”

And Hamill wasn’t convinced she’d get any additional advice. “He never called to introduce himself when he took over my account, more than a year ago, and never asked about my goals, interests, or background,” she says. The advisor had initiated only one conversation with her, Hamill adds, after some lingering estate funds started to roll into the account. “He just wanted to trade the stocks, and that was the only conversation we ever had.”

In the end, she bailed out. While she didn’t dump the brokerage entirely—she liked the high credit limit it allowed on her linked Bank of America credit card—she avoided the advisory fee by moving everything to Merrill Edge, the company’s online brokerage. The service provides little personalized advice, and she’ll still pay $6.95 every time she makes a trade, but that’s far less than the thousands she would’ve paid through a fee-based account.

The Fiduciary Rule's Rocky Rollout

You could certainly call Hamill’s case a one-off—a stressful transition, communication misfires—but in phone and email exchanges with more than 50 investors (at a variety of firms) and industry observers, Money found her experience was not unusual. Nor, it seems, are the problems limited to one big Wall Street institution.

Some of the issues stem from the rule’s interrupted rollout—and uncertain future. An Obama-era initiative, the regulation emerged from the Labor Department, whose purview includes retirement accounts. But while finalized in 2016, the rule wasn’t slated to take effect until April of this year.

That timeline may have seemed fine amid expectations that another Democratic administration would see the rule through to completion—yet it proved lethal once President Donald Trump had taken office, with Republican majorities in both houses of Congress.

The GOP has generally opposed the measure, echoing Wall Street’s line that the rule would hurt less wealthy consumers by making it financially impossible for advisors to give them crucial advice. A Trump memorandum in February effectively pushed back the initial rollout to June 2017, and delayed until 2019 a second part of the rule, which among other provisions would have let consumers bring class-action suits against firms that violated their fiduciary duties. The House of Representatives, meanwhile, is weighing legislation that would roll back the standards already in effect. And the new SEC chairman told lawmakers in October the agency was drafting its own fiduciary rule that would supersede the Labor Department’s version.

President Donald Trump looks over to Rep. Ann Wagner, R Mo., as she speaks before Trump signs an executive order that effectively delayed implementation of the fiduciary rule.
Pablo Martinez Monsivais—AP

Such flux has caused confusion for both investors and financial firms. In seeking to standardize practices and limit their legal risk, some firms have interpreted the fiduciary rule as a mandate to shift all their clients into fee-based accounts, avoiding commissions altogether.

Wall Street Benefits From Fee Accounts

In truth, the financial services industry was already pushing clients over to fee-based accounts—in part because the change was good for business. While financial advisory firms’ revenues have remained essentially flat since 2014, revenue from fee accounts has grown by over 5%, according to Aite Group research. Among the biggest firms (Merrill Lynch, Morgan Stanley, Wells Fargo, and UBS), fee-based investments now make up 38% of assets managed, Aite found.

Even off Wall Street, firms have seen an uptick in their fee-based business. Brokerage Stifel Financial announced the second best quarter in firm history in October, with total revenue climbing to $721 million. Just one quarter earlier, CEO Ron Kruszewski said that the fiduciary rule was one key reason for Stifel’s “shift” from commission revenue to fee revenue. “And as a result of this shift, we continue to be pleased with the growth in asset management revenues,” he noted.

At Raymond James, assets in fee-based accounts are up 27% over the past year, the company said in October. That increase is “due to net advisor growth and market appreciation and increased use of fee-based accounts,” CEO Paul Reilly said at the time.

For Consumers, 'The Lingo Is Intimidating'

One Raymond James client, New Jersey nurse Gina Wise, received her mailing in early August. Her financial advisor had been managing assets in a small Roth IRA that she kept in an outside account at OppenheimerFunds. But in the 51 pages of paperwork she received, she was told that she had to transfer her Roth to Raymond James.

Raymond James declined to comment on the policy shift, but Wise found the letter daunting. “The lingo is very intimidating,” Wise says. “It’s no different than someone coming into my world—I’m an oncology nurse—and the lingo, the medical terms, and the names of the drugs are another language. You wouldn’t understand it either.”

At her husband’s urging, she called Oppenheimer, which told her she didn’t need to shift anything to Raymond James unless she wanted an advisor to help her make changes to her account. “That’s all I needed to hear,” she says. “I’m going to cut them out; I don’t need the nonsense. I don’t need the middle person.” For now, she’s sticking with Oppenheimer and opting to forgo advice on the account—dropping Raymond James altogether.

Good for Some Investors—but Not All

As the industry implements the new rules, investors’ experience may vary widely, depending on their age, life stage, and goals.

If you’re a younger investor, starting from scratch, the rule may work well for you. If you want a human advisor to help you figure out retirement, that person will need to put your interests first—by law. And if you have less money and don’t need comprehensive advice, you can skip a planner for now and just use either a discount brokerage or one of the new robo-advisors: computer algorithms that invest for you, based on factors like age and appetite for risk, and tend to charge much lower fees.

If you’re already working with a broker, however, there are pitfalls. With some firms limiting their commission account options, you may be pushed to shift accounts and start paying an annual fee. If your advisor charges the average and you have $500,000 in retirement savings, you’d be looking at new fees of over $5,000 every year—and if you leave, you may face losses or other consequences from selling off your holdings.

Money has long recommended fee-based compensation for financial advice. If you’ve got complex investments and need help managing different financial priorities, paying a fee may be money well spent. But as several people interviewed for this story noted: You’ve probably already paid commissions on everything in your portfolio; if you’re already retired, in fact, you may just be spending down your holdings rather than changing them around. So for that 1% fee, you should be getting ongoing service, advice, and performance.

Moreover, not every investor needs, or wants, either the extra service or the accompanying price tag. Almost 60% of investors who pay commissions said they didn’t want to switch to a fee-based account, according to a recent J.D. Power survey of 1,000 investors.

“With robo-advisors becoming more mainstream and online brokerages charging rock-bottom prices, if you don’t want any management and you just want execution, charging a 1% fee is going to be a tough thing,” says Bill Butterfield, a senior analyst specializing in the wealth management industry for research firm Aite Group.

Some investors say the fee was tolerable—once it got cheaper. Take John, a retiree who asked that his last name be withheld because he doesn’t want to damage his relationship with his advisor. He spent two months running the numbers this spring after his Merrill Lynch advisor asked him to change accounts—and start paying a 2.2% advisory fee. “I’m not doing a lot of buying and selling,” says John, who also shared with Money the paperwork Merrill provided him about the new account structure. “I’m not that type of person who would generate a lot of commissions and therefore save money on a fee-based account.”

After several rounds of conversations, he agreed to move some assets into a fee-based account that charged 0.5% annually, while keeping others untouched in a commission account. But he feels the agreement has only bought him some time to figure out a long-term solution. “As that portfolio becomes all fee-based, it’s not going to be in my best interest,” he says.

Does a Fee Make Someone a Fiduciary?

Amid all the changes, it’s easy to lose sight of the fact that transferring investors completely out of commission-based accounts was never required by the rule—nor do fee accounts automatically confer fiduciary-level service. “I’m having trouble wrapping my arms around how simply switching a client to a fee-based account equals fiduciary service,” says Butterfield, the industry analyst at Aite.

Even if a firm decides to offer only a fee option, the prices must be reasonable for the services offered, says Barbara Roper, director of investor protection at the Consumer Federation of America. “You can’t foist services on investors they don’t want or need in order to justify charging them a higher price,” Roper says. “If the firm only has a fee account option, and the investor doesn’t want or need all the services traditionally provided to fee accounts, then at the very least they ought to have a pricing option that’s designed with those investors in mind.

“You can’t shift people into fee accounts and then point to the higher cost and say, ‘Gee, investors are being harmed,’ ” Roper adds. “Lower the fees to reflect the level of service.”

For an investor like Hamill, who needed very little ongoing account management and felt her current advisor was not providing any additional advice, the solution turned out to be Merrill’s online brokerage. She got access to the same research on the markets, but she could make her own buy-or-sell decisions.

More changes are likely to come for the fiduciary rule—and for investors. It’s a lot to keep track of, but your retirement is definitely worth the effort. In the end, you may find that you’re happier making a change, as Hamill is. “I set up the Merrill Edge through my local branch, and they’ve been really nice to me,” she says. “I’ve been really impressed so far.”