May 14, 2007 / 9:58 PM / 11 years ago

US SEC won't appeal fee-based accounts ruling

WASHINGTON, May 14 (Reuters) - The U.S. Securities and Exchange Commission said on Monday that it will not challenge an appeals court decision overturning a controversial agency rule that spared some broker-dealers from having to register with the SEC.

The SEC rule exempted certain brokers who offer investment planning advice from strict disclosure requirements, as long as the advice was only a small part of their business.

The federal appeals court ruling affects an estimated 1 million fee-based brokerage accounts that hold a combined $300 billion, according to the SEC. Fee-based accounts are not the traditional commission or advisory accounts that comprise the majority of accounts with brokers.

The U.S. court of appeals for the District of Columbia in March ruled that the SEC exceeded its authority in granting the exemption.

SEC Chairman Christopher Cox said he asked the court to stay its ruling for four months to give the agency time to consider if an interpretation or rulemaking is needed to clarify what is now required of fee-based brokerage accounts.

“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,” Cox said in a statement.

The Financial Planning Association (FPA), which brought the case in 2004, 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.

“There is tremendous confusion in the marketplace,” said Brad White, a spokesman for the association. “What we want is clarity on this issue.”

A survey released recently by the Consumer Federation of America stated that fewer than one-third of U.S. investors understand that broker’s primary service is buying and selling securities, not investment advice.

The Securities Industry and Financial Markets Association (SIFMA), which represents some of the biggest Wall Street companies, criticized the SEC for not challenging the court decision.

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, SIFMA said.

“As a result of the SEC’s decision not to ask for a rehearing today, one million investors will be disadvantaged — forced into accounts where choices are limited and costs to consumers can be nearly double,” said Marc Lackritz, SIFMA chief executive. “SIFMA pledges vigorously to pursue a solution that will enable investors to have access to fee-based payment options and that will not force investors into a world of one-size-fits-all accounts.”

Under the Investment Advisers Act, stock brokers and financial planners must register and maintain records as well as limit the types of contracts they enter into.

The law carves out six exemptions from the definition of “investment adviser,” including any broker or dealer “whose performance of such services is solely incidental to the conduct of his business as a broker or dealer” and “who receives no special compensation therefor.”

The SEC in 2005 adopted a rule exempting broker-dealers from the act’s requirements when they do receive special compensation for the advice if the advice is “solely incidental to brokerage services provided on a customer’s account” and if specific disclosure is made to the customer.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below