If you haven't seen it by now, be aware that the Securities and Exchange Commission has decided to exempt stockbrokers from any standards that are employed by registered financial advisors.
This is all started back in 1999 when the SEC proposed a new rule that would exempt fee-based brokerage programs from certain standards (fiduciary and disclosure) of the Investment Advisers Act of 1940, thereby requiring only a basic, rather minimal, disclosure that the account was indeed a brokerage account. However, unlike a typical SEC modus operandi, this one was never adopted although the agency did allow brokers to operate under such an exemption until the final rule was adopted.
Along came our friends at the Financial Planning Association who, this past summer, filed a petition in the U.S. Court of Appeals challenging this proposed rule that would expand the exemption for broker-dealers otherwise subject to the fiduciary and disclosure standards of the Advisers Act.
"This lawsuit is about restoring the integrity of the Investment Advisers Act and its protections to investors by eliminating a loophole for broker-dealers and allowing them to operate as advisers with virtually no disclosure of conflicts," said Elizabeth Jetton, president of FPA. "For nearly five years the SEC has permitted brokerage firms to comply with a rule that was never adopted. We believe that at a minimum, the SEC should comply with the rules under which federal regulations are adopted and to act promptly by withdrawing a poorly conceived regulation."
It should be mentioned that a slew of consumer and adviser groups have also been lobbying the SEC to withdraw or even clarify what it meant that investment advice be "solely incidental" to brokerage services.
"Clearly, consumers, financial planners, and compliance professionals still do not know what the SEC meant under the rule proposal," said Ms. Jetton. "However, instead of attempting to define a difficult legal concept, we believe the public would be better served by requiring brokers to operate under the higher standards of investor protection afforded by the Advisers Act."
But what the SEC has done is pretty much ignored the reasoned objections of these financial planners and consumer groups even though it sought to reassure the securities industry in general that brokers are safe from enforcement action under the law. The FPA has claimed that this is a double standard and it has asked the court to force the SEC to withdraw the regulatory exemption for brokers who also act as financial planners.
To say that this is a reasonable argument would be an understatement. The FPA is right on the money here. All they are saying is that brokers who act as financial advisors should be treated as such by the law. Is that so hard to understand? Not at all. The FPA is right.
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access