Edward Jones Maps Out Fiduciary Rule Response

The investment advisery firm Edward Jones says it will look to grandfather IRA relationships acquired before April 2017, while also instituting some fundamental changes to process and product to comply with the new fiduciary rule for ongoing and new relationships.

Like many other advisory firms and retirement plan services providers, Edward  Jones is starting to roll out its formal response to the Department of Labor (DOL) fiduciary rule.

The firm tells PLANADVISER it will look to grandfather individual retirement account (IRA) relationships acquired before April 2017, while also instituting some fundamental changes to process and product to comply with the rule within ongoing and new client relationships.

Much of the change is focused on the IRA market. As the firm explains, investments in existing IRAs serviced by Edward Jones, “as well as systematic investment plans that are in place before April 10 of next year,” can continue as long as they remain in the best interest of clients. “New investment purchases won’t be allowed in a grandfathered account after the rules become effective with the exception of mutual fund exchanges, variable annuity subaccount reallocations, and systematic investment plans agreed to prior to implementation. “

Instead, the firm “will create a transaction-based IRA option using the Best Interest Contract Exemption.” Initially, this will include stocks, bonds, CDs and variable annuities, the firm says. “For now, it will not include ETFs, UITs or mutual funds.”

“Right now, because there is such  pricing variability within and between mutual funds, it is difficult to align mutual funds with the requirements of the Best Interest Contract Exemption,” the firm explains. “We believe in the future the mutual fund industry will need to align around common pricing and common structures in order to meet the DOL fiduciary standard.”

NEXT: A difficult decision  

Edward Jones is unequivocal that this decision was not made lightly, “but it was made in the best interest of our clients, our branch teams, and our firm.”

Additional features expected to be implemented within the transaction-based IRA include an individual investor minimum of $100,000 in qualified assets. The exception will be for variable annuities, where the minimum will be $10,000.

“The $100,000 minimum is because a fiduciary standard requires diversification,” the firm says. “We believe the $100,000 minimum will allow for proper diversification given the products available in a transaction-based account in the future.”

The firm is also making some internal-facing changes “to further enhance our fee-based choices and in response to client feedback.” As of August 20, the new minimum for the firm’s Guided Solutions Flex account, which allows for non-discretionary investments in stocks, bonds and mutual funds and ETFs, will be reduced from $100,000 to $25,000 for clients who want to purchase stocks and to $50,000 for clients who want to purchase individual bonds in their account. Related to this, the new minimum for the firm’s Advisory Solutions account, which allows for program investing in mutual funds and ETFs, will be reduced from $50,000 to $25,000.

Finally, the Guided Solutions Fund account, which allows clients to purchase mutual funds and ETFs with a minimum of $5,000, isn't changing, “and that account is now broadly available to branches and clients.” The minimums will apply to all client accounts that are investing in these solutions, including traditional and Roth IRAs, and non-qualified accounts.