Death of B-D rule causing defections

The death of the so-called “Merrill Lynch” rule is causing confusion among broker-dealers as well as opening the door further for registered reps to leave the brokerage business. Those were the conclusions from a panel discussion titled “The Merrill Rule: A Legal Perspective” this morning at the annual meeting of the Financial Services Institute in Orlando, Fla. The impact of a federal appeals court decision last spring to overturn the rule creates additional incentive for financial advisers to drop their securities licenses and exclusively offer investment advisory services, said David Bellaire, general counsel for the Atlanta-based FSI. And this comes at a time when the number of broker-dealers is contracting while the number of registered investment advisers is increasing, noted Mr. Bellaire. “There continues to be a fair amount of gray area and confusion here,” said Neal Sullivan, a partner in the Washington office of Bingham McCutchen LLP. When Financial Planning Association of Denver won its case last year, broker-dealers had $300 billion in client assets in an estimated one million fee-based brokerage accounts. One area of uncertainty could center on the record keeping of accounts that have been moved from fee-based brokerage accounts to investment advisory accounts, Mr. Sullivan noted. There’s confusion over books and records, he said. For example, can the Financial Industry Regulatory Authority – which regulates broker-dealers – “back into” an exam or analysis of investment advisory accounts, Mr. Sullivan asked.