SEC mulls uniform regs for advisers and brokers

Sep 19, 2005 @ 12:01 am

By Sara Hansard
Bruce Kelly

WASHINGTON - The Securities and Exchange Commission will study the issue of common regulations for financial planners and brokers, an SEC official told brokers last week.

"How do you deal with this evolving financial services profession?" asked Robert Plaze, associate director of the SEC's division of investment management. He was addressing the public-policy conference of the Atlanta-based Financial Services Institute Inc., held here last Wednesday. "I recognize the problem," Mr. Plaze told the group.

The SEC intends to examine how the financial services industry is regulated in the United Kingdom and some states, where financial advisers and brokers come under the same regulations, he said.

The SEC last week delayed the implementation of new investment adviser registration rules. As a result of the delay, brokerage firms will have an additional three months, until Jan. 31, to comply with the regulation requiring them to be registered as investment advisory firms if they provide financial planning advice.

The rule exempts brokers who charge asset-based fees from falling under the same regulation as investment advisers if they do not have discretion over the assets and who make ample disclosures to investors that they are providing brokerage services, not investment advisory services.

Different statutes

When the rule was adopted last spring, the SEC agreed to study the issue of how various types of financial advisers and brokers are regulated.

"We have a single regulator but with different statutes" for investment advisers and brokerage firms, Mr. Plaze said in a telephone interview with InvestmentNews.

The SEC's study will look at: "How do we avoid putting financial services into boxes? How do we tailor regulation to the nature of the services offered, rather than to what the firm calls itself, a broker-dealer or an adviser?" Mr. Plaze said.

"Different terms are used to mean the same service, the same organization: broker-dealer, financial consultant, registered rep, financial planner," he said. "That's part of the confusion that's out there, and the commissioners were very concerned about that confusion."

The disclosure requirements of the rule are causing concern to the brokerage industry. "When they started focusing on financial planning and the more holistic financial services, that tends to be a bigger deal," Mr. Plaze said. Fee-based brokerage might "not be as big a deal as everyone hoped it would be in the broker-dealer community," he commented.

The Securities Industry Association, based in New York and Washington, the American Council of Life Insurers in Washington and the Financial Services Institute had requested a six-month extension of the compliance date for the rule. The original compliance date had been set at Oct. 24.

The Denver-based Financial Planning Association has sued the SEC over the rule, which it says will harm investors, because, it says, they do not understand the difference between a broker and an adviser.

Advisers must meet fiduciary standards that require them to act in the best interests of investors, while brokers have a different set of regulations they must follow, generally based on whether investments are suitable for clients.

"I'm glad to see that they are open to taking a look at reviewing the current structure," said James Barnash, president of the FPA and a Chicago-based managing director with Lincoln Financial Advisors Corp. of Fort Wayne, Ind.

A new world

"We felt it was time we needed to look at the world as it is today versus the world 30 to 40 years ago, when the rules were created, because the environment has changed," he said, referring to the FPA. "We're not against having the larger institutions have an ability to stay in the game, but we do want to have a level playing field. So instead of taking existing rules and carving out exemptions, let's look at the overall structure of the rules."

Fund Democracy Inc. of Oxford, Miss., a mutual fund shareholder advocacy group, the Consumer Federation of America in Washington and other consumer groups had opposed delaying implementation of the rule. "We're gratified the SEC decided not to grant the full six-month extension they had sought," said Barbara Roper, director of investor protection for the CFA.

"In the long term, we're more concerned with whether the SEC will implement the rule in a way that provides meaningful new protections in terms of how they define what constitutes financial planning that subjects broker-dealers to regulation under the rule."

"In the scheme of things, since this has been lingering since 1999, an additional three months is not enormously consequential," said Neil Simon, director of government relations in the FPA's Washington office.

SIA president Marc Lackritz issued a release praising the extension, saying that brokerage firms need the additional time to develop new disclosures, redraft contractual language and deliver them to customers.

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