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| 2004
News and Press Releases |
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HEADLINE:
NYSE Warns Fee-Based Brokerage Accounts Can Be Harmful
By: Jed Horowitz
Dow Jones News Service. June 23, 2004
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EXCERPT: Just when brokerage firms thought they were helping themselves and their customers by charging annual fees instead of per-trade commissions, regulators are warning that commissions might be better. The New York Stock Exchange has proposed a rule change that would require its members to disclose details of fee-based programs - including price comparisons with transaction accounts - and to have procedures for identifying and contacting customers in fee programs who might pay less with traditional commissions. If approved by the Securities and Exchange Commission, the disclosure documents would have to be given to customers before they open fee-based accounts and distributed annually after the accounts are opened. Wall Street firms have been pushing brokers to convert customers to accounts with fixed annual fees or fees based on a percentage of account value. They cite the dual benefit of ensuring income even when investors shy away from weak markets and of inhibiting brokers from promoting trading for the sake of building more commissions, a practice known as churning. More than 18% of the retail assets at Merrill Lynch & Co., the biggest U.S. securities firm, are now in fee-based accounts, and they have grown to 25% from 21% one year ago at Morgan Stanley, the second biggest firm. Regulators say they aren't out to disparage fee-based accounts but to remind brokers, formally known as registered representatives, of their due-diligence responsibilities to do what is best for particular customers. Indeed, some have taken to use the term 'negative churning' to describe brokers who improperly put customers in fee programs.
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