The Broker-Dealer Rule

I found this article regarding the transformation of the Broker-Dealer Rule very informative, especially the timeline of the rule since inception. I'm not sure if we have seen the last of the FPA/SEC brawl since there are many clients with fee-based advisory accounts at broker/dealer firms. Will the broker/dealer industry adapt to the new rules or will they force others to adapt to their rules?

http://www.fpanet.org/journal/articles/2007_Issues/jfp0507-art2.cfm

(click for PDF)

Source: The Journal of Financial Planning

In the End, Votes Count in the Broker/Advisor Donnybrook
by Duane Thompson

Duane Thompson is managing director of the Financial Planning Association's Washington, D.C., office. Chronology: Evolution/Devolution of the Broker/Dealer Rule Spring 1940. Congress approves Investment Advisers Act of 1940; act provides for limited industry exemptions, including brokerage firms that give advice in connection with stock sales. Summer 1999. Major wirehouses meet with SEC regarding new fee-based "brokerage" programs and exemption from Investment Advisers Act of 1940. November 4, 1999. SEC proposes additional exemption for brokerage firms in a no-action rule titled "Certain Broker/Dealers Deemed Not to Be Investment Advisers." SEC staff states it would not recommend enforcement action against broker/dealers complying with proposed rule. January 14, 2000. SEC deadline for submitting comments on the rule. December 20, 1999–July 10, 2004. SEC receives 248 comment letters regarding the proposed rule. Of this total, 96 percent are opposed, 1 percent is opposed in part, 3 percent support the rule. July 20, 2004. Lawsuit filed in federal court by FPA challenging the rulemaking on technical grounds. August 18, 2004. SEC reopens comment period on rule, citing FPA legal challenge. August 27, 2004. D.C. Circuit Court of Appeals orders delay of lawsuit, following motion for delay by SEC, which promises final action on rule by December 31. Court orders reports by SEC every 45 days. September 22, 2004. SEC deadline for submitting new comments; additional 1,500 letters received since lawsuit filed, overwhelmingly opposed. December 22, 2004. SEC adopts temporary rule to extend broker exemption through April 15, 2005, proposes modified rule. Commissioners publicly pledge final rule adoption by deadline. Reopens comment period for third time. February 7, 2005. SEC deadline for submitting comments on amended rule; receives another 300 letters for cumulative total of 2,000. February 9, 2005. D.C. Circuit Court orders SEC and FPA to file new motions related to the lawsuit by April 29, or no more than 30 days after SEC adopts final rule, whichever comes first. March 29, 2005. SEC focus groups express confusion over the many titles used by financial services agents and are generally unaware of the different standards for consumer protection. April 6, 2005. SEC unanimously adopts the broker/dealer rule (IAA Rule 202(a)(11)-1). April 28, 2005. FPA files a petition in the United States Court of Appeals for the District of Columbia Circuit challenging the SEC's final rule exempting certain broker/dealers from the requirements of the Investment Advisers Act of 1940. FPA also seeks, with the SEC's consent, to file a motion consolidating the petition with FPA's pending petition, filed on July 20, 2004, concerning the rulemaking proceeding. December 16, 2006. SEC issues a no-action letter easing the restrictions on brokerage firms offering financial planning services and effectively allowing them to offer and deliver financial plans and similar services to customers under similar-sounding marketing terms. January 31, 2006. Implementation deadline of the broker/dealer rule goes into effect: brokerage firms can no longer hold out as a financial planner or offer financial planning services, or deliver a financial plan to a customer. March 23, 2006. FPA submits written brief to court citing that the SEC improperly created a new exemption for the brokerage industry that defies congressional intent and puts the investing public at risk. May 11, 2006. SEC responds to FPA's brief, challenging its standing to bring the lawsuit, and contesting its version of legislative history. May 25, 2006. FPA responds to SEC. October 5, 2006. Oral arguments are held in FPA v. SEC in the U.S. Court of Appeals for the District of Columbia Circuit. March 15, 2007. FPA seeks formal interpretative guidance from the SEC in understanding the differences between financial planning and fee-based brokerage services under the broker/dealer rule. FPA also notes clear violations of the financial planning and disclosure requirements, and questions timing of the delivery of the required disclosure of potential conflicts of interests by brokers as inadequate. March 30, 2007. U.S. Court of Appeals for the District of Columbia Circuit rules in FPA's favor in FPA v. SEC in a 2-to-1 decision, vacating the broker/dealer rule in its entirety. The ruling of the U.S. Court of Appeals for the District of Columbia Circuit and the legal briefs filed in the case can be reviewed online at www.FPAnet.org/member/govt_relation/lawsuit-against-sec-broker-dealer-rule.cfm.