SEC Rule Requires Disclosure Of Broker-Dealer Status

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

01 August 2005

A new Securities and Exchange Commission (SEC) rule which came into force last month requires brokerages to disclose in a "prominent" position in their documentation whether they are acting as investment advisers or merely as broker dealers.

The SEC argued that the distinction was necessary as investment advisers have a fiduciary duty to their clients, whereas some brokers are compensated by investment firms, meaning that they may not necessarily put their clients' interests above their own.

According to the Financial Planning Association, which opposes the new rule:

"In order to reduce public confusion over the differences in regulatory standards for sales agents and financial advisers -- many of whom frequently use similar job titles -- the SEC adopted a July 22 compliance deadline requiring registered representatives of a broker-dealer to provide customers with a prominent consumer warning statement that the account is a brokerage, and not an advisory account. The statement must note that “our interests may not always be the same as yours,” and refer them to someone in the brokerage firm for additional questions."

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