U.S. court strikes down SEC broker exemption rule

By Karey Wutkowski

WASHINGTON (Reuters) - A federal appeals court on Friday overturned a U.S. Securities and Exchange Commission rule exempting certain broker-dealers who offer investment planning advice from strict disclosure requirements.

In the latest in a series of legal setbacks for the SEC, the U.S. Court of Appeals for the District of Columbia Circuit said the SEC exceeded its authority in granting a disclosure exemption to brokers who provide investment advice that is incidental to their business but who are still paid a special fee for the advice.

The SEC issued the exemption to clear up regulatory confusion so that brokers could offer fee-based accounts without having to register as financial advisers, according to the Securities Industry and Financial Markets Association, which represents some of the biggest Wall Street companies.

But the Financial Planning Association (FPA), which brought the case, argued that the exemption allowed stock brokers to dispense advice without disclosing conflicts of interest. The group represents accountants, bankers, attorneys, insurance agents and others who offer financial planning services.

"We have always contended this is a consumer protection issue," said Duane Thompson, managing director of the FPA's Washington office. "It will be making it easier for consumers to understand who they're dealing with if there's going to be full disclosure."

SEC spokesman John Nester said the agency would "analyze the opinion and proceed appropriately in investors' best interests."

LEVELING THE FIELD

Thompson said the court decision levels the playing field between stock brokers and financial planners, who under the Investment Advisers Act must register and maintain records as well as limit the types of contracts they enter into.