Monday, April 2, 2007

Merrill Lynch Rule Stricken

In another blow for the SEC, and a huge potential problem for fee based brokers, the U.S. Court of Appeals for the D.C. Circuit issued its opinion in Financial Planning Association vs. SEC. In a 2-1 decision the court vacated Rule 202(a)(11)-1 on the basis that the SEC had exceeded its authority under the Investment Advisers Act of 1940 in promulgating the rule.

For the moment fee based accounts and discretionary accounts are still available, but that may all change shortly as the decision becomes final and the SEC decides to appeal.

Long term however, brokerage firms who have not created investment advisor subsidiaries need to start doing so. "Brokers" and "advisers" have different obligations to their clients and individuals who are providing financial advise and receiving a fee for that advise will undoubtedly have to register as advisers, despite their broker-dealer registrations.

A truly unique turn of events, given the relatively lax level of regulation of investment advisers when compared to the multi-level of regulatory morass for the brokerage industry.

The decision is here.
Post a Comment