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Will Trump Repeal the Fiduciary Rule?

November 16th, 2016

By Mack Bekeza

For those who work for Broker-Dealers and Registered Investment Advisers, no one is certain whether Donald Trump or the Republican Party will attempt to eliminate the Fiduciary Rule or keep it intact. But before we get ahead of ourselves it is important to ask one question, will Donald Trump or the Republican Party be able to dismantle the Fiduciary Rule before it becomes enforceable on April 10th, 2017?

Although we cannot answer this question in confidence just yet, repealing this legislation will be quite a task for a few reasons:

  1. With the Fiduciary Rule being effective since April 2016, the rule cannot just simply be thrown out by an executive order. It is also worthy to note that the legislation took 6 years to be written, so the likelihood of the DOL eliminating it is extremely slim.
  2. Broker-Dealers, Insurance Firms, and Investment Advisers have already spent significant resources in designing compliance friendly products and re-inventing their business platforms. So, if the rule were to be thrown out, the government could have dozens of lawsuits on their hands, especially from those who were for the rule.
  3. Despite the Republican Party holding the majority in Congress, they still do not have enough seats to overthrow a filibuster from the Senate. In addition, repealing legislation can take months or even years, during which the rule could have been enforceable for a notable amount of time.
  4. With Donald Trump already planning to tackle dozens of issues in his first 100 days, repealing the Fiduciary Rule is more than likely not his top priority. The rule will also become enforceable by the 80th day of his presidency.

Although it appears that the Fiduciary Rule is here to stay, we will keep you updated if there is anything that will threaten the rule.

©2016 Castle Rock Investment Company. All rights reserved. Please share your insights and comments with us at

Morgan Stanley Sticking With Commissions

October 28th, 2016

By Mack Bekeza

Morgan Stanley recently announced how it plans to comply with the impending Fiduciary Rule. As expected, Morgan Stanley did not follow the Merrill Lynch path. Instead, it plans to operate under a provision of the rule called “Best-Interest-Contract Exemption (“BICE”)”. In other words, Morgan Stanley’s strategy is to tackle the compliance requirements and have its clients sign additional disclosures.

Morgan Stanley has decided to take the BICE route because it believes that its “advisers can most effectively uphold a fiduciary standard of care and work in clients’ bests interests by continuing to offer choice.” Morgan Stanley further stated, “Delivering a retirement account platform based on fiduciary principles that provides the widest possible capabilities and preserves client choice is our vote of confidence in our advisers’ continuing commitment to placing client interests first.”

Essentially, Morgan Stanley believes that offering clients the choice between having a commission-based or fee-based retirement account is in the client’s best interest. This also assumes that Morgan Stanley advisers will not sell or recommend certain alternative investments that might not optimally meet a client’s liquidity and retirement needs.

In our opinion, Morgan Stanley may have chosen its business model to differentiate itself from Merrill Lynch. Many advisers only sell commission-based products and want to work for a large broker dealer. The rule points out that paying commissions may be in a client’s best interest (versus asset-based fees) if they have few transactions. However, the firm might still come under fire if its clients believe they are being misled. At the end of the day, it’s about putting the clients first.

If you would like to read further into the decision, check out Investment News’s post about Morgan Stanley’s decision.

©2016 Castle Rock Investment Company. All rights reserved. Please share your insights and comments with us at

Will Morgan Stanley Replicate Merrill Lynch?

October 20th, 2016

By Mack Bekeza

During Morgan Stanley’s third quarter earnings conference call, James Gorman (CEO of Morgan Stanley) stated that the firm will announce their plan to comply with the DOL’s upcoming Fiduciary rule within the next couple of weeks. However, James Gorman did state that “we are not changing things”, “we run our business with the values of doing everything we can to support our clients and we will continue to do so.” In other words, Morgan Stanley will more than likely not go the Merrill Lynch route by no longer offering commission based IRA accounts.

So, if Morgan Stanley decides not to forgo commission based retirement accounts, what would be another possible strategy for them? Although the Fiduciary Rule will technically still allow commissions, it will be required for brokers and advisors to disclose all conflicts of interests to their clients with retirement accounts. It is also important to note that Morgan Stanley’s wealth management division currently oversees $2.1 trillion in client assets, with $855 billion of those assets being under a fee-based model which is a 75% increase from the third quarter of last year. In other words, Morgan Stanley’s strategy could have a significant ripple effect with their clients as well as their advisors.

In addition, Morgan Stanley was charged by the Commonwealth of Massachusetts with “conducting an unethical, high-pressure, sales contest amongst its financial advisors to encourage clients to borrow money against their brokerage accounts.” Morgan Stanley says the allegation is “without merit” and will “vigorously” defend itself. Please note that Morgan Stanley has $70 Billion in client loan balances, which is a new record according to them.

With Morgan Stanley’s strong stance on how they run their business, it will be very interesting to see how this will all play out in the next couple of weeks. And if the charges from Massachusetts are correct, Morgan Stanley will face a world of hurt from regulators and potentially lose client assets. Click on the links to read further into Morgan Stanley’s conference call and the Massachusetts allegations.

©2016 Castle Rock Investment Company. All rights reserved. Please share your insights and comments with us at

Major Move by Merrill Lynch to Comply with Fiduciary Rule

October 11th, 2016

By Mack Bekeza

In order to comply with the upcoming Fiduciary Rule, Merrill Lynch decided to discontinue offering commission based IRA accounts to investors starting April 10th of 2017. Specifically, they want to remove a major conflict of interest between them and their clients by only offering fee-based advisory, robo-advisory, and self-directed services for IRA accounts. Merrill Lynch’s decision is expected to have a major ripple effect for not only their clients, but for their advisers and their respective competitors.

So, how does Merrill Lynch’s decision affect their advisers and their competitors?

  1. As of April 10th of 2017, the firm’s 14,000 plus advisers will no longer be able to open new commission based IRA accounts, which is a notable source of their compensation. On top of that, advisors will now have to further prove their value to their clients when their primary form of compensation will be under a fee based model.
  2. Since Merrill Lynch is one the first major wirehouse firms to make this move, it is expected that other wirehouse firms will also follow suit in order to remain competitive in the upcoming Fiduciary focused marketplace.
  3. Merrill Lynch as well as other wirehouse firms will more than likely face other regulatory issues such as having fee-based variable compensation, which will be prohibited under the Fiduciary Rule.
  4. This might lead to certain broker dealers to no longer service IRA accounts due to additional costs of complying.

Although we believe this is an excellent move by Merrill Lynch, we believe that wirehouse firms such as Merrill will still face regulatory issues as they may have to forgo recommending certain investments to clients as well as having to develop a truly uniform method of compensation from their IRA accounts.

©2016 Castle Rock Investment Company. All rights reserved. Please share your insights and comments with us at

Thrivent is Afraid of Getting Sued!

October 6th, 2016

By Mack Bekeza

In recent news, Thrivent Financial for Lutherans filed a lawsuit against the DOL over the new fiduciary rule and how it could prevent Thrivent from resolving disputes internally. Specifically, Thrivent is seeking a preliminary and permanent injunction against part of the rule that will allow investors to bring a class action against them.

So, why is Thrivent Financial worried about not being able to resolve disputes internally? For one, Thrivent primarily employs sales representatives who sell proprietary insurance and investment products on a commission basis, which will be considered a prohibited transaction under the new rule. Second, one of the primary sources of their total revenue comes from IRA investments and rollovers from qualified plans. In essence, Thrivent is basically claiming that they will have to completely overhaul their business structure.

Although there is not an official comment from the DOL in regard to this lawsuit, experts are curious to see if the DOL will point to statutory authority for regulating retirement accounts and whether or not they will prevail over the Federal Arbitration Act.

Although Thrivent is not the only firm dealing with this issue, it is ironic that a company that was founded and claims to operate under Christian principles is having issues with the contractual obligation to be a fiduciary. Also, the reason why the fiduciary rule and its allowable exemptions are being put into place is so firms such as Thrivent have to work in their retirement investors’ best interest. And on top of that, the fiduciary rule will help make the financial services industry a more true and honest profession, which will give investors more confidence to invest with these firms.

What are your thoughts on this case?

©2016 Castle Rock Investment Company. All rights reserved. Please share your insights and comments with us at

Water Cooler Wisdom: Third Quarter 2016

October 5th, 2016

By Mack Bekeza

The Presidential Election and What to Know

Despite the pleasant performance in the stock market for 2016, investors are becoming more doubtful about the global economy as a whole in regards to how “pleasant” future growth will be. On top of that, The U.S is having one of the most interesting presidential elections in history. With both of the leading candidates making big promises to the public, how will these proposed actions affect the economy as a whole? But perhaps the biggest question and misconception that U.S investors have is “How does the President affect the economy?”

For our response, we want to point out 3 big myths about how the President affects the economy

            1. Capital Markets perform better when Republicans are in the White House:  

Although many consider the Republican party as the “pro-business” party, if you look at the returns of the Dow Jones Industrial Average since 1897, the markets do not give a hoot about who is president.

2. Major pieces of legislation get passed once the new President assumes office:

With the exceptions of the Affordable Care Act and Dodd-Frank, The United States rarely makes major policy changes in one major swoop, rather in small increments.

3. The President has as much of an impact on the economy as consumers and businesses:

     Although the media places major scrutiny on the President over the U.S Economy, government spending only accounts for 17.7% of total GDP, while the remaining 82.4% comes from consumer spending, private investments, and foreign trade.

So… will this presidential election completely change the way we invest? More than likely no. However, it is important to note the U.S GDP is expected grow between 1.5 to 2% over the next decade. This is primarily due the recent and projected dismal growth in the U.S labor force along with over $30 trillion in private wealth being transferred to younger generations. In other words, it is more crucial to observe how Millennials begin to take charge of the U.S Economy rather than who becomes president.

Attached are slides that provide more detail regarding presidential elections and major leading economic indicators.

©2016 Castle Rock Investment Company. All rights reserved. Please share your insights and comments with us at


Who is Trying to Stop the Fiduciary Rule?

September 29th, 2016

By Mack Bekeza

On September 21rst, US District Court Judge Daniel Crabtree over saw a preliminary injunction hearing involving Market Synergy Group (“Market Synergy”) and the Department of Labor (“The DOL”). Market Synergy is an independent marketing organization (“IMO”) that represents 20,000 independent insurance agents and claims that the new DOL fiduciary rule will create irreparable harm to these agents. Specifically, they believe that independent agents selling Fixed Indexed Annuities (“FIAs”) should not be required to comply with the new rule.

One of Market Synergy’s primary claims is that IMOs are not considered “Financial Institutions”, a requirement to be subject to the rule, and therefore are not required to comply. They also claim that the DOL lacks the authority to regulate FIAs.

In our opinion, even if Market Synergy and other IMOs are not considered “financial institutions”, they are still selling FIAs that are primarily purchased via individual retirement accounts and, therefore, should be subject to the new rule. On top of that, FIAs typically pay notable commissions to agents, regardless if they are independent or not. In other words, these agents still need to prove that selling a FIA is in the retirement investors’ best interest.

Secondly, although states technically regulate insurance products, Judge Crabtree pressed Market Synergy, asking, “Couldn’t the federal government step in to regulate fixed indexed annuities if the states were doing a bad job regulating fixed indexed annuities?” Market Synergy agreed that if the DOL found that the states’ regulations were “woefully inadequate”, federal agencies, such as the DOL, could further regulate such products. Market Synergy essentially shot itself in the foot by agreeing to that statement.

Although Judge Crabtree is skeptical about Market Synergy’s claims, he is also skeptical whether or not the DOL has a strong claim that IMOs and their independent agents are subject to the new fiduciary regulation. In other words, there is still a possibility that an injunction will be placed on the DOL which will allow these agents to sell high commission products to retirement investors.

What are your thoughts on the case?

© 2016 Castle Rock Investment Company. All rights reserved. Please share your insights with us at or via phone at 303-719-7523

State Farm and Edward Jones React to the Fiduciary Rule

September 28th, 2016

By Mack Bekeza

With April 10th, 2017 quickly approaching, a large number of investment firms and insurance agencies are scrambling to comply with the DOL fiduciary regulation. However, some firms believe they have found a solution to the upcoming rule. Knowing that their representatives cannot put their clients’ interest first, State Farm and Edward Jones have announced plans to prevent their employees from selling mutual funds when the new fiduciary rule takes effect next April.

So how will they be able to do this without significantly reducing their revenue? State Farm plans to only sell and service their mutual funds, variable products, and tax-qualified bank deposit products by a self-directed call center, as opposed to having their agents sell the products directly. In other words, State Farm still wants their customers to purchase these products while being able to avoid liability if the product turns out not being in a customer’s best interest.

Edward Jones’s solution involves curtailing retirement savers’ access to mutual funds in commission based accounts and lowering their investment minimums. Basically, Edward Jones is planning to shift completely into the fee only side of compensation for retirement accounts and allow more investors to move their money to them.

Although it will be interesting to see how State Farm’s self-directed call center will play out, at least they have a strategy to deal with the upcoming rule. As for Edward Jones, going completely towards the fee-only side for retirement accounts is a good move as they are eliminating a major conflict of interest for recommending certain products.

Although there are a number of firms still trying to strategize to comply with the DOL rule, we are still waiting to hear plans of other advisers that sell investments that may not be in their clients’ best interest. However, we will attempt to keep you posted as more firms finalize their strategies.

© 2016 Castle Rock Investment Company. All rights reserved. Please share your insights with us at or via phone at 303-719-7523

The DOL Rule and Why Brokers and Insurance Agents Should be Concerned

September 7th, 2016

By Mack Bekeza

Are you currently a Registered Representative or an Insurance agent? If so, you will want to keep reading!

As you may know, the Department of Labor will have new regulations in effect on April 10, 2017, which will change how Brokers and Insurance agents conduct business with retirement investors.

For starters, when dealing with retirement investors, the broker or insurance agent cannot receive variable compensation. This means that someone receiving commissions, asset based fees, 12b-1 fees, etc. must create a uniform method of compensation.

Additionally, any investment recommendations must be in the retirement investor’s best interest, meaning that the agent or broker must have a thorough understanding of the client’s overall financial picture and cannot just rely on FINRA’s suitability standards.

Finally, if you still want to receive variable forms of compensation, you must be able to comply with something called the Best Interest Contract Exemption, aka the “BICE.” And, in order to truly comply, you have to be certain that recommending a product that will pay you variable compensation is in the retirement investor’s best interest.

The major caveat with complying with the BICE is that even though the client is fully aware of how you are compensated, if he or she believes the product is not their best interest, he or she can file a lawsuit against you. In other words, you can still sell commission based products, but don’t expect the BICE to bail you out if you are sued!

So, who is considered to be a retirement investor? To make this simple, do you sell or make investment recommendations for the following accounts?

  • ERISA governed Retirement Plans (with less than $50 million)
  • Non-ERISA Retirement Plans (e.g., Keogh, Solo Plans)
  • IRAs
  • Health Savings Accounts, Archer MSAs, and Coverdell ESAs

If you fall into one of these categories, you will want to seek advice on where to go from here! If you reside in the Greater Denver Area, Castle Rock Investment Company and The Law Offices of Ed Frado, LLC are hosting an event to educate Brokers and Insurance Agents on the details of the new DOL regulation on September 20th at Maggiano’s in the Denver Tech Center. If you would like to register, click here

We hope to see you at the event!

© Castle Rock Investment Company. All rights reserved. Please share your insights with us at or via phone at 303-719-7523

Fund Families sued by their own employees over their retirement plans??

August 24th, 2016

By Mack Bekeza

Over the past two years, a number of investment firms have been sued by their employees over their 401(k) plans. That’s right! Investment firms have been sued over their own in-house retirement plans! Why? In most cases, these firms would only provide proprietary funds to their employees at a full or slightly reduced cost. In fact, here are just a few of the recent cases from the past two years:

1. Transamerica
2. Fidelity Investments
3. Ameriprise
4. New York Life
5. Great West (Empower)
6. MFS Investment Management
7. Waddell and Reed
8. Allianz Global Investors
9. MassMutual
10. Neuberger Berman
11. Putnam Investments
12. BB&T
13. Edward Jones
14. Morgan Stanley
15. American Century

Why do these investment firms offer their own funds to their employees without significantly lower fees? First, they do not want to convey to their employees that there are potentially superior investment opportunities outside of the company. For instance, Fidelity might not want to offer an outside fund that could be cheaper and possibly better performing than a comparable Fidelity fund. Additionally, since these plans tend to be very significant in size, reducing investment fees for their own employees could be problematic, since it could potentially increase fees for their retail investors to absorb the cost.

Is there a solution to this dilemma? Yes, there actually is! For the investment firms that are currently offering their proprietary funds to their employees without reduced expenses, these firms should consider offering outside funds to their employees. This could potentially result in lower expenses for the employees. Furthermore, this could remove the target off their backs from ERISA once the DOL regulation becomes effective in April of 2017. Of course, this is a lot easier said than done because it requires investment firms to expose their weak spots in their investment line ups, which could also potentially leak out to their retail investors. Also, a retirement plan was never meant to make the employer money, it is supposed to be a generous benefit for its employees.

With the new DOL regulation coming in April 2017, 2016 has proven that broker dealers and investment advisors are not the only target, but the fund families have also been dealing with quite the roller coaster themselves. And, as retirement investors, we should be glad that the investment business is starting to clean up its act for good and will in return make the industry more beneficial for everyone.

© Castle Rock Investment Company. All rights reserved. Please share your insights with us at or via phone at 303-719-7523