(Bloomberg Gadfly) -- Every financial adviser in the country has been debating the Department of Labor's new fiduciary rule, arguing about whether or not it's really good for investors. For my part, I’m on the record here and here saying that the rule -- which requires brokers who work with retirement accounts to put their clients’ financial interests ahead of their own -- is a boon for investors.

(Bloomberg News)
(Bloomberg News)

One of the largest brokerages in the world, Merrill Lynch, has also thrown its immense weight behind the shift. It has introduced sweeping changes to its retirement accounts in response to the fiduciary rule, giving its investors myriad new choices about how to invest retirement savings and deciding how much to pay for advice.

The fiduciary rule is a broad standard, but it has a very specific consequence: With limited exceptions, the rule no longer allows mutual fund companies to pay brokers for selling their funds to clients. Why would you sell other products if it meant less money in your own wallet? Thanks to the Department of Labor, a decades-long compensation practice for brokers that was rife with conflicts of interest is now ending.

But in the weeks and months following the announcement of the fiduciary rule earlier this year, it wasn’t clear how brokerage firms would adapt. Would they embrace the spirit of the rule? Would they use the rule as an excuse to raise fees for retirement savers? Would they simply abandon those investors altogether?

Who Looks Good?

The Thundering Herd

Edward Jones was the first major broker to announce changes to its practices, and the path it chose didn’t bode well for investors. Edward Jones said that it would stop offering mutual funds and ETFs to commission-based retirement accounts. Investors in those accounts would have to make do with stocks, bonds, variable annuities and certificates of deposit. If they didn't like those choices they would have to move to a managed account that charges a pricier asset-based fee.

I suggested that Edward Jones instead try to: 1) expand mutual fund options to include index and other low-cost funds, 2) allow clients to choose between a managed account that charges an asset-based fee and a self-directed account that charges commission-based fees, and 3) only accept fees from its clients in order to minimize conflicts of interest.

As far as I can tell, Edward Jones isn’t doing any of that. But Merrill is. Its retirement clients will be able to choose between a managed account that charges an asset-based fee and a do-it-yourself brokerage account that charges commissions. Both options will offer a full range of investment options, including index funds. Most important: Merrill will take fees from its clients, and nobody else.

Read more: Merrill’s fiduciary plan: Commission-based IRAs will be phased out

Merrill is also joining the modern world a new robo-adviser. Merrill Edge Guided Investing –- which is scheduled to launch in February of next year -- will offer active portfolio management in a robo wrapper with an account minimum of just $5,000 and an annual fee of 0.45%. That fee is modestly higher than the fee charged by first-generation robo-advisers who take a passive approach to investing. (Merrill has not yet announced the ETFs that will be used in its robo-portfolios, so it’s not clear how the cost of those ETFs will compare with ETFs used by other robo-advisers.)

Let’s applaud Merrill’s efforts and recognize the sea of change that they represent. Mother Merrill -- as it’s affectionately called by its thundering herd of brokers -- remains a standard-bearer among traditional brokers. It’s hard to imagine that its competitors (including Edward Jones) won’t follow suit.

But Merrill shouldn’t stop there. All of its clients should have the same investment options that it now offers holders of retirement accounts. That’s the inevitable next step, and traditional brokers like Merrill would do better to lead that change than to be grudgingly dragged along by regulators -- or eclipsed by competitors.

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