FPA Takes Issue With SEC Broker Registration Rule

by Glen Shapiro, LawAndTax-News.com, New York

06 May 2005

The Financial Planning Association (FPA) late last month revealed that it has filed a petition in the United States Court of Appeals for the District of Columbia Circuit challenging the Securities and Exchange Commission’s (SEC) final rule exempting certain broker-dealers from the requirements of the Investment Advisers Act of 1940.

The rule, entitled “Certain Broker-Dealers Deemed not to be Investment Advisers,” was issued on April 12, 2005 and was published in the Federal Register on April 19, 2005.

It states that:

"A broker-dealer providing advice that is solely incidental to its brokerage services is excepted from the Advisers Act if it charges an asset-based or fixed fee (rather than a commission, mark-up or mark down) for its services, provided it makes certain disclosures about the nature of its services."

In a statement released following the filing of the legal action, president of the Association, James Barnash explained that:

“FPA believes that the Rule is contrary to law and encourages broker-dealers to engage in self-dealing with their clients without disclosing their conflicts of interest.”

He continued:

“Although FPA recognizes that the SEC enhanced certain disclosure requirements for brokerage customers in the Final Rule, we are convinced that it is nonetheless contrary to the public interest and will harm consumers by formalizing two different levels of consumer protection for the same advisory services.”

The Financial Planning Association has argued that broker-dealers, unlike financial planners registered as investment advisers under the Act, have no blanket fiduciary duty requiring them to place their clients’ interests first, and has stated that challenging the SEC’s expansion of broker-dealer exemption in the 1940 Act is the top public policy priority for FPA members.

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