Wells Fargo Drops Plans to Use T Shares in Retirement Accounts

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

Specifically, mutual fund sales would be limited to newly minted “T shares” in retirement accounts. The change was 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.

At the time, it was said that the move to T-shares for retirement accounts was 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 saw it, the uniformity of compensation across T shares “has been designed to remove conflicts and ensure the equitable treatment of mutual fund investors.”

However, Wells Fargo Advisors recently announced it was pulling back on plans to use T shares. “In 2017, we made plans to use T shares in brokerage retirement accounts but eventually decided against it,” the firm told PLANADVISER in a statement. Although it did answer the question of whether the decision was made in response to the 5th U.S. Circuit Court of Appeals mandate to vacate the DOL’s fiduciary rule, it is clear that T shares and so-called “clean shares” were created to comply with the rule.

There is general agreement that clean shares will not have front-end loads or 12b-1 fees, which are those used to pay for a mutual fund’s distribution costs. “But, there is disagreement about whether clean shares should include sub-transfer agency fees, or sub-TA fees, and other kinds of revenue sharing, Aron Szapiro, director of policy research at Morningstar, recently told PLANADVISER. There has been no report that the use of clean shares will be abandoned.

Asked whether Wells Fargo Advisors will reconsider T shares if the DOL’s fiduciary rule is revisited or the SEC pushes through a conflict of interest rule, the firm simply said, “Although we could offer them in the future, we have no current plans to do so.”