US Investors And Brokers Asked To Respond To Court Decision On Fee-Based Accounts

by Philip Morton, Investors Offshore

16 May 2007

The US Securities and Exchange Commission on Monday announced that it will ask a 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 seemingly 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 will 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. The goal will be to provide customers of the firms with the information and time they need to determine the appropriate form of securities services for them.

Chairman Cox additionally announced that he has approved additional emergency funding to accelerate an on-going outside study of the marketing, sale, and delivery of financial products and services to investors in this area. The previously-commissioned study, by the RAND Corporation, will be delivered to the Commission no later than December 2007, several months ahead of schedule.

The results of the study are expected to provide an important empirical foundation for considering improvements in regulatory and legislative rules that date back to the 1930s.

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