A federal appeals court ruled that the Securities and Exchange Commission overstepped its authority in updating rules governing brokers who offer financial advice.
In a 2-1 decision, the U.S. Court of Appeals for the D.C. Circuit sided with the Financial Planning Association, which sued the SEC over its original 1999 proposal -- which was never actually adopted. The association said that the rule violated distinctions Congress intended to apply to brokers and investment advisers.
The court's ruling Friday vacated the commission’s rule, with the judges writing that the SEC lacked authority to give brokers a broad exemption from laws that apply to financial advisers.
In the years since the 1999 proposal, the SEC adopted has a rule clarifying when brokers were allowed to offer fee-based accounts to brokerage customers, and also seen the rejections of a rule requiring federal registration of hedge-fund advisors and a rule mandating that mutual-fund boards have an independent chairman.
Congress has said that brokers can offer financial advice, but only when it is solely incidental to their brokerage business and the brokers do not earn any special compensation for the advice.
