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This page was last updated on May 6, 2003. No Free Pass for Broker-Advisers
Consumer and industry groups have asked the SEC to take final action on its proposal to exempt brokers who provide investment advice from regulation as investment advisers (Press Release & Letter to SEC). The SEC has proposed that the same brokers that recently settled fraud charges for $1.4 billion should not be regulated as investment advisers -- even when they provide investment advice. Under intense opposition to the proposal (see comment letters to the SEC), the SEC has not formally adopted the rule, but it has effectively permitted the industry to rely on the rule as if had been adopted. 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. For more information on the rule, see the SEC's proposal and links to public comment letters on the proposal. The comment letters submitted by the Financial Planning Association and the Investment Counsel Association of America are particularly helpful. The Merrill Rule also was a topic during the first panel at the SEC's May 23 conference on investment adviser regulation. See also Mercer Bullard, Proposed SEC Rule on Brokers Makes no Sense, TheStreet.com (May 15, 2001); Mercer Bullard, Barbarians at the Gate, On Wall Street (June 2000) & Financial Planning Magazine (June 2000); Paul Farrell, Gordon Gekko Still Rules Wall Street: Ethics Losing to Greed -- Where's the SEC? CBS.Marketwatch.com (May 30, 2000); Christopher Schmitt, Battle Continues Over Exemption for Flat-Fee Accounts, TheStreet.com (May 23, 2000); and Christopher Schmitt, Wall Street Wants Flat-Fee Accounts Exempted from Investment-Adviser Rules, TheStreet.com (May 5, 2000). If you oppose this rule, please send a letter to any or all of the SEC Commissioners. Provided below are contact information for the SEC Commissioners, Senate Finance Committee Chairman and ranking minority member, and House Financial Services Committee Chairman and ranking minnority member.
Related documents: Mercer Bullard, Proposed SEC Rule on Brokers Makes No Sense, TheStreet.com (May 15, 2001) List of electronically-filed public comments on broker-adviser exemption Financial Planning Association Comment Letter (Jan. 14, 2000) Investment Counsel Association of America Comment Letter (Jan. 12, 2000) SEC Roundtable on Investment Adviser Reglatory Issues (May 23, 2000)
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