SIFMA Angered By SEC Capitulation Over Fee-Based Accounts

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

17 May 2007

The Securities Industry and Financial Markets Association (SIFMA) has expressed outrage over the Securities and Exchange Commission's decision not to ask for a rehearing in the case of the Financial Planning Association v. SEC.

The SEC on Monday announced that it had asked the court to allow four months for investors and their brokers to respond to a court decision affecting an estimated one million fee-based brokerage accounts.

The US securities regulator had previously exempted fee-based brokerage accounts from registering as investment advisory accounts, a decision successfully challenged by the Financial Planning Association of Denver.

In asking for a 120-day stay of the ruling of the US Court of Appeals for the District of Columbia Circuit in Financial Planning Association v. SEC, the Commission announced it would not seek further review of the March 30, 2007 decision that affects customer accounts holding an estimated $300 billion.

“The Commission is committed to taking the opportunity provided by this decision to improve investors’ ability to make educated decisions about their investment accounts and their financial services providers,” explained SEC Chairman Christopher Cox.

The court’s March 30 decision primarily affects fee-based brokerage accounts, but not the traditional commission or advisory accounts that comprise the majority of accounts with brokers.

The Commission will consider whether further rulemaking or interpretations are necessary regarding the application of the Advisers Act to these accounts and the issues resulting from the court’s decision.

The Commission also will work with individual brokerage firms during the transition period as they respond to the March 30 decision.

Commenting after the SEC announcement, Marc Lackritz, SIFMA president and CEO stated that:

“As a result of the SEC’s decision not to ask for a rehearing today, one million investors will be disadvantaged -- forced into accounts where choices are limited and costs to consumers can be nearly double. SIFMA pledges vigorously to pursue a solution that will enable investors to have access to fee-based payment options and that will not force investors into a world of one-size-fits-all accounts.”

He added:

“The SEC helped popularize these accounts as an important step in aligning a broker’s and client’s interests. Their decision not to seek a rehearing leaves one million investors and their brokers to pick up the pieces.”

According to SIFMA, due to the volume of accounts and the logistics involved, many firms have suggested that four months will not be enough time to make the required transition.

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