Wells Fargo Advisors Focuses on T-Shares for Retirement Clients

The move to T-shares for retirement accounts is expected to help advisers and clients working with the brokerage firm meet the requirements of the strict new conflict of interest regulations.

Wells Fargo Advisors is putting new limits on mutual fund share classes and types of securities advisers can sell or recommend in a client’s retirement account.

The development at the major U.S. brokerage firm was first reported by Investment News and has been confirmed by PLANSPONSOR: Mutual fund sales will be limited to newly minted “T shares” in retirement accounts. There will also be prohibitions related to “more esoteric” municipal bonds, including taxable municipal bonds, and corporate debt below moderate credit quality.

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These changes are set to take effect starting in the first weeks of June, with the implementation of the Obama-era Department of Labor (DOL) fiduciary rule and related exemptions.

“Wells Fargo Advisors is well-positioned for the Department of Labor’s fiduciary rule and we are prepared for the June 9 implementation date,” a spokesperson says. “We recognize our clients need choices when making their investment decisions to help them achieve their long-term goals. We are assessing the DOL’s latest guidance and will continue to evolve our strategy to ensure our clients have the best outcomes under the rule.”

The move to T-shares for retirement accounts is expected to help advisers working with the brokerage firm meet the requirements of the strict new conflict of interest regulations. In general terms, the shares have a 2.5% commission and a 25 basis point trail. As the firm sees it, the uniformity of compensation across T shares “has been designed to remove conflicts and ensure the equitable treatment of mutual fund investors.”

Advisers will retain leeway to recommend U.S. Treasuries, U.S. government agency bonds, brokered certificates of deposit, and U.S. corporate debt that meets “moderate credit quality and liquidity requirements,” Wells Fargo confirms.

Wells Fargo suggests it may end up reforming these policies once again in the future, depending on how the Trump administration and Congress proceed. As a field assistance bulletin published by the DOL’s Employee Benefits Security Administration (EBSA) describes, the DOL is still “actively engaging in a careful analysis of the issues raised” in relation to the fiduciary rule by industry groups and other skeptics.  “It is possible, based on the results of the examination, that additional changes will be proposed to the fiduciary duty rule and prohibited transaction exemptions,” DOL says.

United of Omaha Faces Lawsuit Over GICs

The lawsuit charges that the crediting rate United of Omaha set for guaranteed investment contracts allowed it to receive excessive compensation.

A lawsuit has been filed on behalf of retirement plan participants who have invested in guaranteed investment contract (GIC) accounts provided by United of Omaha Life Insurance Company.

The allegations in the lawsuit are similar to those in a lawsuit recently filed against Principal Life Insurance Company.

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According to the complaint, United of Omaha operates the United of Omaha Guaranteed Account to the retirement plans in which the plaintiff and the proposed class members are participants and beneficiaries. These participants and beneficiaries have invested in the Guaranteed Account pursuant to a GIC that governs the relationship between the plans and United of Omaha.

The lawsuit says the contract grants United of Omaha discretionary authority to set its own compensation as a service provider to the plans. In addition, the contract grants United of Omaha discretionary authority to determine the rate of return that will be credited to participants in plans that invest in the Guaranteed Account. The contract does not disclose how the credited rate is determined, does not specify the credited rate, and does not specify a minimum rate of return.

The lawsuit alleges that United of Omaha breached these fiduciary duties and engaged in transactions prohibited under the Employee Retirement Income Security Act (ERISA) by, among other things, improperly exercising its discretionary authority “to maximize its own compensation and retain large profits rather than crediting the participants and beneficiaries of the plans with appropriate returns.”

The complaint says United of Omaha invested the retirement assets it received pursuant to the contract, and retained for itself the difference between the investment earnings on those assets and the interest it chose to credit to the plans. “United of Omaha retained the margin in addition to service fees it charged the plans, which caused United of Omaha to receive excessive fees incident to its administration of the Contract,” the complaint alleges. “As a result of United of Omaha’s actions, the plans’ assets were diminished.”

The lawsuit seeks monetary and equitable relief on behalf of the class.

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