Washington (Aug. 27, 2004) -- The Financial Planning Association agreed not to oppose a motion filed in federal court by the Securities and Exchange Commission delaying a legal challenge until next year, giving the federal agency an opportunity to act on a controversial rule regarding the regulation of broker/dealers.
“We are very pleased that the SEC has responded in a constructive fashion by making this rulemaking an agency priority,” said FPA president Elizabeth Jetton. “We greatly appreciate the SEC’s effort to move the process forward in a timely manner."
In July, the FPA filed a lawsuit in a District of Columbia appeals court against the SEC in connection with a proposed 1999 rule allowing broker/dealers to offer fee-based financial planning services without registering under the Investment Advisers Act of 1940. The SEC has permitted brokerage firms to operate as if the rule were in effect and until a final rule is adopted, so they are not subject to the act's higher disclosure and blanket fiduciary standards.
The FPA, which has been on record since January 2000 against the rule and has repeatedly asked the SEC to withdraw it, said that the proposed rule significantly broadens a 60-year-old exemption for brokerage firms from the Advisers Act, an exemption that previously relied on the form of compensation and scope of investment advice offered by a brokerage firm.
The SEC’s motion, entered Wednesday in federal court, would delay the filing of any additional briefs, documentation and other court pleadings in the case until at least Jan. 14, 2005. Last week, the commission announced a new, 30-day public comment period on the rule proposal and pledged to take final action on the rule by the end of the year. The SEC told the court that a final decision on the rule would eliminate the need for judicial review of certain procedural issues, “or eliminate them entirely.” The SEC, in the meantime, can withdraw the rule from further consideration, amend it or adopt the original proposal.
Once the legal dispute over the rulemaking process itself is resolved, Jetton said, the FPA "can then determine whether the substance of the rule, if one is adopted, should be challenged in a court of law.”
In its own court filing, the FPA listed procedural and substantive legal issues that would be raised in court, including challenging the lengthy five-year delay by the commission in not taking action.
-- WebCPA staff
