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Fees on Accounts-The Government Is Enabling A Shake Down

Monday, October 10, 2016 5:13
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The Department of Labor recently changed regulations on how brokerage agencies can charge fees to accounts.  Remind me again why the Department of Labor is stepping into the relationship between a broker and customer again?  It’s another example of government overreach.

Regulators often try to bend the rules of economics.  They often forget that demand curves slope down, and that if there is economic incentive to do something people will find a way.  This morning, I woke up to the daily Tastytrade email and it was prescient.  I love the common sense of independent traders and Tom Sossnoff is one of the best.

When the DOL (Dept. of Labor) changed the rules regarding fiduciary responsibility for retirement accounts, their intent was to reduce conflicts with respect to advice and fees. OK, that seems like reasonable intent given that we’ve trained investors to be passive and to trust the experts. But we all know that a wolf is not your best hire to watch the sheep. By the way, run if you ever hear the phrase ‘trust the experts.’ So I wasn’t sure how the financial industry was going to turn good intent into another consumer rip-off. Thanks to Merrill Lynch we don’t have to wait long for the industry’s response. I am embarrassed to report that Merrill figured out, bad math and all, how to get favorable headlines and rip off their clients at the same time. By hiding behind the veil of fiduciary  responsibility, Merrill will eliminate IRA commissions for non-self-directed retirement accounts which will increase their annual fees charged by as much as 60% across the board. More firms are sure to follow because hey, they don’t want to get fined. It’s a sad abuse of ethics and intent but luckily it doesn’t apply to tastytraders. Remember, give a man a fish and you feed him for a day. Teach a man to fish and they sell overpriced volatility!


If you have an IRA and are a passive investor, it sounds like you will be paying more in fees.

Merrill Lynch will no longer give retirement savers the option of paying a commission for trades, a wholesale exit from the traditional Wall Street sales model in accounts that stand to be affected by new conflict-of-interest rules on retirement accounts.

The Bank of America Corp. brokerage unit told its more than 14,000 brokers on Thursday that after April 10, when the new rules take effect, investors who want a retirement account at Merrill will need to pay a fee based on a percentage of their assets, instead of having the option of being charged for each transaction made in their account.

What this means is if I follow Eugene Fama’s efficient market hypothesis and put all my retirement money in a no-load low fee mutual fund that replicates the S&P 500-and I never actively trade it, I am charged a percentage of my assets every single year simply for the privilege of holding an account.

That’s sort of unfair isn’t it?  Brokerages should charge some commission on trades and when they give advice.  They are providing value.  But, if the money is passive and I am only interacting with my account online, why should I be charged anything?

Crappy government regulations are going to allow brokerages to reap a 60% higher benefit than they normally would have.  Wall Street has an economic incentive to figure out how to win.  No doubt, they had input.  This is yet another dumb regulation in an industry that is far too opaque to begin with.


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