LPL Financial has unveiled a new mutual fund platform designed to adhere to the fiduciary rule, though the rule's uncertain fate poses an impact on a key aspect of the plan.
The platform would feature load-waived shares in more than 1,500 funds from 20 sponsors, the country’s largest independent broker-dealer announced last week. LPL also plans to limit upfront commissions to 3.5% and set trailing fees at 0.25% on the platform, which is slated to launch early next year.
The lower, standardized fees reflect the mandate on firms to rein in conflicts of interest under the Department of Labor's rule and its best interest contract exemption, which governs commissions on retirement clients' accounts.
The rule has upended offerings throughout the industry, particularly with respect to mutual funds. President Trump’s administration may try to rescind or revise the rule before its full implementation Jan. 1, but LPL joined other firms in changing its product lineup to comply with it.
“At launch, [the platform] will be a price-competitive solution that not only preserves investor choice — but amplifies it,” according to a company memo to advisers obtained by Financial Planning.
“As you know, other financial firms have limited or even fully removed brokerage options for retirement investors. But when brokerage is in the best interest of your client, we’re providing a solution.”
WHO’S ON THE PLATFORM?
Company executives expect the platform to keep more than 80% of LPL’s mutual fund products for brokerage clients while eliminating trading fees and annual account fees, according to the memo. Offerings from Fidelity Investments await final approval for possible inclusion on the platform, LPL says.
Clients could exchange their investments among the various fund families after opening accounts. Existing clients would not pay commissions if they have holdings in funds eligible for the platform, including vehicles from Goldman Sachs Asset Management, BlackRock, Columbia Threadneedle and other managers.
New clients entering the platform would pay a one-time commission while routing their investments through a partnering Goldman Sachs institutional money market fund to the funds of their choice.
“Our research shows that screening for funds with low fees and high manager ownership will help identify equity funds with a history of superior long-term outcomes,” Bill Brady, a senior vice president at American Funds, said in a statement. Brady said products from his firm would be eligible as well.
LPL execs plan to decide whether they’ll require retirement accounts to move on to the platform closer to its launch date, a company spokesman said in an email. The choice depends on the “regulatory environment and industry developments,” he said. The firm is bracing for the rule, despite uncertainty.
“We expect the rule to create disruption that will lead to movement of both advisers and assets in the coming months and years,” CEO Dan Arnold said in the company’s last earnings call.
LPL is testing the platform with the various fund sponsors ahead of a pilot later this year among a small number of advisers, according to the firm.
Mutual fund experts predict advisers of all firms will see a reduced menu of products under the fiduciary rule, in keeping with a longtime trend toward lower fees. Advisers should consider other ways that they serve clients, according to a panel at last month’s Pershing Insite conference.
“If your value proposition to a client is picking funds or creating models, in five years, I just don’t see that being relevant anymore,” said Carly Maher, a senior vice president for enterprise initiatives at Ladenburg Thalmann.
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