'Merrill Lynch rule' struck down

Mar 30, 2007 @ 11:23 am

By Sara Hansard

The Securities and Exchange Commission’s so-called “Merrill Lynch rule” was overturned in a 2-1 decision released Friday morning by the U.S. Court of Appeals for the District of Columbia Circuit in Washington.

The decision is a big win for the Financial Planning Association of Denver, which challenged the SEC when it issued its rule in 2005 exempting brokerage firms that charge asset-based fees from investment advisory regulations under specified conditions.

The ruling, written by Judge Judith Rogers for herself and Judge Brett Kavanaugh, said the SEC exceeded its authority by exempting brokerage firms that charge asset-based fees from regulation under the Investment Advisers Act of 1940.

“The rule is inconsistent with the IAA,” Judge Rogers wrote, because it fails to meet the law’s requirements for exemptions.

Under that law, she wrote, brokers can only be exempt from advisory regulation if they do not receive “special compensation” for giving advice.

Charging asset-based fees means they must register as advisers.

“No… indicators of congressional intent support the SEC’s interpretation of its authority,” Judge Rogers wrote.

Judge Merrick Garland, who dissented, said that the SEC’s interpretation of the IAA was reasonable, and courts are bound by legal precedent to give government regulators the benefit of the doubt in interpreting the law.

The ruling is “very straightforward,” and a “clean decision,” commented David Tittsworth, executive director of the Investment Advisers Association in Washington.

“This is throwing the rule out.”

The decision opens the door for Congress to re-examine the securities laws in light of changes that have taken place in the industry since those laws were enacted in the Depression era.

“It looks to me like Congress probably will need to get into this fray to sort it out,” Mr. Tittsworth said.

“This rule should have died a quick and merciful death six years ago,” said FPA President Nicholas A. Nicolette.

“It would not be the best use of taxpayer dollars to prolong a policy that is contrary to the public interest.”


What do you think?

View comments

Recommended for you

Latest news & opinion

Supreme Court decision likely to prevent brokers from filing class-action lawsuits

However, it likely won't bar employees from filing 401(k) lawsuits against their employers.

5th Circuit denies states' second attempt to defend DOL fiduciary rule

The three-judge panel split again, 2-1, in deciding not to take another look at the motion to intervene by California, New York and Oregon.

Pass-through tax strategies for business-owner clients

Shifting business structure, changing filing status and spinning off equipment are examples of ways business owners can take advantage of the deduction.

Finra anticipates oversight role for SEC advice rule

CEO Robert Cook says one area for examination could be the proposed requirement that brokers act in the best interests of their clients.

IBDs with the most CFPs

Here are the 10 independent broker-dealers that employ the most certified financial planner professionals.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print