New SEC Head Harvey Pitt Urged To Oppose Broker-Dealer Rule

by Carla Johnson, Investors Offshore.com

27 June 2001

On the eve of Senate confirmation hearings for the nominee for SEC chairman, Harvey Pitt, the Financial Planning Association warned that a proposed SEC rule would seriously weaken investor protection. The FPA urged members of the Senate Banking Committee to ask Pitt to state his position on the new rule, and if he is ultimately confirmed by the Senate, the Association will ask him to oppose the rule.

The proposed rule would permit US broker-dealers to avoid registration under the Investment Advisers Act, while still allowing them to function as investment advisers. Brokers providing investment advice would not therefore be held to the higher standard of fiduciary conduct required of Certified Financial Planners and other registered investment advisers, which is a matter of great concern to the FPA.

'Under current law, investment advisers are required to provide clients with detailed information about their services, fees, and conflicts of interest through extensive disclosure requirements mandated by the SEC,' explained Guy M. Cumbie, president of the FPA. 'This proposed rule would mean that brokers who provide the same investment advice would be held to a meaningless level of disclosure by only having to tell clients that their accounts are brokerage accounts.'

Mr Cumbie also expressed concern that very large brokerage companies claiming to provide investors with objective, independent advice would only be regulated as sellers of investment products, and warned that if the new rule is enacted, brokers could conceivably sell their customers stocks from their own inventory, without being obliged to inform them of the fact.

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