Tags: fiduciaries | Morgan Stanley

It looks like the wirehouse community is now taking the prospect of universal fiduciary duty seriously enough that some reps are adopting fee-based compensation models now.

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Charles Johnston, vice chairman of Morgan Stanley, says that an "interesting trend" has emerged over the course of 2011 as more of his people move their accounts to the firm's advisory platform.

He suspects the migration is motivated by a sense that "the world's going to change" when -- not if -- the SEC mandates that advisors in the commission-driven channel need to treat their clients with fiduciary levels of care.

That shift could start coming in the next few weeks, since the SEC has promised action on the issue as early as later this month.

It might be ironic that Johnston says his reps are looking for a more stable regulatory environment by moving to the RIA side of the business.

After all, it's the RIAs who are still wondering who's going to regulate them next year, much less what shape that supervisory framework will take.

Johnston made his comments at SIFMA's regulatory conference this week. 

RBC Wealth Management CEO John Taft confirmed that there's a sense in the wirehouse that shifting to fees is now a regulatory "safe harbor" and "the simplest thing to do" in order to manage re-regulation risk.

SIFMA's position is that if too many brokers shift to fee-based models, middle-market investors will have to pay more money for advice.

Tags: high net worth | Merrill Lynch

Memos have been flying around Merrill Lynch about ways to get the Thundering Herd to court higher-quality clients and stop simply gathering the assets.

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Dow Jones got its hands on one proposal that would pay Merrill advisors a bonus if they trim their books to no more than 150 families, most of which have $250,000 or more to invest -- the firm's target for "affluent" investors. 

A full 35% of the money has to be in fee-based accounts and yes, cross-selling into advisory and banking products would be rewarded.

Finally to be eligible for the bonus, Merrill advisors need to get their client retention numbers up to 98% or above.

Additional incentives are available for advisors who get professional certifications or shift to a team-driven approach.

It's not clear whether Merrill hopes the smaller accounts will be shifted to Merrill Edge, which is explicitly designed to work with clients with under $250,000.

Merrill advisors currently work with about $98 million apiece on average.

That means that in order for the high-net-worth "enhanced" grid to kick in and make sense, they've got to make sure that each of their no more than 150 client households actually has at least $650,000 invested in the firm.

The typical Merrill advisor who simply followed all the rules and courted the maximum number of clients with the minimum $250,000 to invest would actually have to surrender $60 million in AUM and 2/3 of his or her production. 

Surely Merrill doesn't want that.

Just when the big financial planning groups seem to be getting some traction promoting the fiduciary label, other organizations are busy lobbying for big changes in the way fiduciaries are regulated.

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The Financial Planning Coalition -- made up of NAPFA, the FPA and the CFP Board -- has issued a statement applauding the Senate Banking Committee for considering the issue of whether all self-proclaimed "investment advisors" should be held to a fiduciary standard.

As they say, "most investors assume their financial services providers are required to provide investment advice that is in their best interest. Unfortunately, this is not always the case. Investment advisors are required by law to put their clients' interests first, but other financial services providers do not have to live up to that high standard when providing advice."

In other words, according to the Coalition, non-fiduciary advisors are riding on the goodwill that fiduciary advisors have created around the job title "advisor," without having to do the work to maintain it.

Dodd-Frank gave the SEC the power to apply the duty to everyone claiming the title or distributing what could be considered investment advice.

Fair enough, but the far more heavily funded and wirehouse-dominated Securities Industry & Financial Markets Association (SIFMA) is lobbying hard to stall the process of putting Dodd-Frank into action -- and that includes making fiduciary rules apply universally. 

As CEO Timothy Ryan recently told Bloomberg, "we just want to see it done responsibly, reasonably, and, if they need more time, quite frankly we'd rather they take more time."

One area of regulation Ryan seems happy to see change: the SEC as separate regulator for larger RIAs.

"We have too many regulatory agencies," he says. "We know that."

And influential advocacy group the Consumer Federation of America sees the transfer of RIA oversight to a self-regulatory organization like FINRA as a done deal.

In her testimony to the Senate Banking Committee, the CFA's investment protection chief Barbara Roper continued her support for a universal fiduciary standard, but concedes that she now agrees with SIFMA where it comes to taking RIAs away from the SEC.

It's a simple question of realism for her, not ideology.

"Having spent the better part of two decades arguing for various approaches to increase SEC resources for investor advisor oversight with nothing to show for our efforts, we have been forced to reassess our opposition to the SRO approach," she says.

As far as she's concerned, the right SRO would be better than what retail investors have to deal with now, which is an SEC so overloaded that smaller advisors can go decades between exams. 

Tags: Congress

Calls to Congress to compromise on the federal government's borrowing limits have won Washington, D.C. advisor Michael Farr -- and Warren Buffett, for that matter -- a torrent of criticism as "tax and spend liberals."

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Farr appeared on CNBC recently to address whether debate over raising the federal debt ceiling is mere "political theater" or a matter of fiscal discipline. 

He was reasoned and realistic, pointing out that the world's credit markets are not going to be happy if the U.S. Treasury can't pay its bills.

Rick Santelli, a CNBC staffer known for his right-wing political affiliations, seemed to be busy trying to shout him down.

In return, Farr got flooded with negative Facebook comments and email messages from Santelli fans -- and mention on the Rush Limbaugh radio show.

He's handling it with grace, linking to the Rush "appearance" on his site and voicing his admiration for Santelli's courage to yell over what he believes in.