FPA opposes broker registration delay

Jan 30, 2006 @ 12:01 am

By Sara Hansard

WASHINGTON - The brokerage industry's efforts to delay implementation of a controversial rule requiring some brokers to register as investment advisers is meeting opposition.

The Financial Planning Association on Wednesday came out against the brokerage industry's request to extend the Jan. 31 deadline for brokers who hold themselves out as financial planners to register with the Securities and Exchange Commission. The Consumer Federation of America also is opposed to the request.

The rule originally was slated to take effect at the end of October, but that deadline was pushed back at the behest of the some brokerage firms.

Earlier this month, the Securities Industry Association and the American Council of Life Insurers in Washington asked for an additional deadline extension, saying they need until March 31 to digest recent guidance from the SEC on the rule.

Much to the chagrin of the FPA and others, that guidance, which was issued by Robert Plaze, associate director of the SEC's division of investment management last month, essentially broadened the scope of services that brokers may be allowed to offer without having to register as investment advisers.

Complying with the law

"Having been given virtually everything they could possibly dream of in the staff interpretation, they have plenty of time to make sure that they're not doing any more than they have to to comply with the law," said Barbara Roper, director of investor protection for the Washington-based CFA.

Although the Denver-based FPA didn't oppose the first request for an extension of the deadline, it did come out against the latest request, said Neil Simon, director of government relations in the Washington FPA office.

"They have now had ample opportunity to get their compliance programs in order," Mr. Simon said. "The letter from Bob Plaze, if anything, eases their compliance burdens."

The FPA has filed a lawsuit against the SEC asking the U.S. Court of Appeals for the District of Columbia Circuit to throw the rule out.

Fund Democracy Inc., an Oxford, Miss., organization that advocates on behalf of mutual fund investors, also is opposed to another deadline extension.

SEC spokesman John Nestor declined to comment on whether the deadline would be extended.

Though most brokerage executives were pleased by Mr. Plaze's interpretation, they want more time to make sure their firms are in compliance by the deadline, said Marianne Smythe, a partner in Washington law firm Wilmer Cutler Pickering Hale and Dorr LLP, which represents the New York- and Washington-based SIA on the rule.

"The SEC's interpretation makes a lot of sense," Ms. Smythe said.

But Duane Thompson, group director of advocacy in the FPA's Washington office, said the 28,000-member organization has problems with the way the guidance was provided.

It will be difficult for SEC or NASD examiners to know when services provided to brokerage firm customers are financial planning services that would require the brokers to register as investment advisers, Mr. Thompson said in a Jan. 19 webcast.

Meanwhile, the Investment Adviser Association in Washington, which represents SEC-registered investment advisory firms, does not intend to oppose the requests for a deadline extension. But the group's executive director, David Tittsworth, is worried that the commission has not done enough to educate investors about the distinction between brokers and advisers.

The SEC "needs to take steps to ensure that the rule is being enforced and to educate consumers about the rule," wrote Mr. Tittsworth in a letter to the SEC last week.

Principle trades prohibited

A major reason that brokers do not want to register as advisers is that advisers are legally banned from selling securities owned by their firms, a practice known as "principle trades" that are a core brokerage business.

In his Dec. 16 guidance letter, Mr. Plaze said brokers do not have to register as investment advisers even if they advertise their advisory services.

Brokers have to be registered as advisers only if they advertise themselves as being financial planners and as providing investment advice as part of a financial plan or in connection with providing financial planning services, the letter said.

Brokers may give advice to customers about transactions or asset allocation based on the long-term needs of a client without registering as advisers as long as that advice is not part of a comprehensive plan, Mr. Plaze wrote.

That means brokers can offer a piece of financial planning, such as retirement calculations, without being registered as advisers as long as they do it in a "step-by-step fashion," FPA's Mr. Thompson said in the webcast.

"There will continue to be widespread disagreement between the SEC and our folks about the scope of work offered by brokers when they walk, talk and act like a financial planner," he predicted.


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