Fund Democracy

Articles by Fund Democracy: Archives

Proposed SEC Rule on Brokers Makes No Sense, TheStreet.com (May 15, 2001)

View the full text of the article.

Abstract: Paul Roye, head of the SEC's investment management division, recently announced that he would recommend that the SEC adopt a rule giving brokers who provide investment advice a free pass from regulation as investment advisers.

This rule proposal poses the greatest threat to investor protection of any SEC rule in recent memory. The rule will enable brokers to advise clients to buy or sell securities, and then execute the trade with the broker's own account without the clients' permission. It also will deprive shareholders of information about the brokers' fees, services, and conflicts of interest that advisers are required to provide.

Brokers' relationships with their customers are subject to minimal regulation because a broker's role as salesman is somewhat limited. Investment advisers' relationships with their clients are subject to regulation befitting the fiduciary nature of the relationships. The SEC rule ignores this distinction and subjects brokers to the lower standard of regulation even when they are providing investment advice.

If you oppose the rule, let the SEC know!

Top