A new rule from the U.S. Labor Department concerning retirement accounts is “pushing brokers to decide whether to continue, or nix, the use of commissions,” as noted in this report by The Wall Street Journal.
For decades, stockbrokers have steered away from commissions — or payments for each trade — choosing instead fee-based accounts, where they charge a percentage of assets, regardless of the amounts of trading.
The WSJ notes that the new federal policy is “designed to end incentives that might cause brokers to give conflicted advice — an inherent problem with commission-based retirement accounts” that can have varying costs depending on the types of investment products.
However, moving away from commission accounts could mean investors must pay more in fee-based accounts.
Moving an IRA from commissions to a fee-based structure could mean higher costs for some investors. Cardan Capital Partners co-founder Matt Papazian spoke with the WSJ about the issue:
“Fee-based IRA accounts are typically charged a fee of around 1% annually. So a theoretical $1 million fee-based account would cost about $10,000 a year, brokers say. That doesn’t include other fees, such as embedded costs in exchange-traded funds and mutual funds, although those expenses are typically small, says Matthew Papazian, a financial adviser with Denver-based Cardan Capital Partner.
Learn more about how costs associated with a commission-based IRA can vary more broadly depending on the frequency of trading, the investment products purchased and the fees that come with them. The full report is here.