Financial Planning Association is asking the Securities and Exchange
Commission to clarify when a broker-dealer is considered exempt from
the Investment Advisers Act of 1940.
The FPA, which has been waging a court battle against the exemption, formally asked the SEC for guidance on what the difference is between financial planning and fee-based brokerage services.
The exemption-approved by the SEC two years ago after a six-year battle that pitted financial planners against brokers-allows broker-dealers to avoid being regulated as investment advisors so long as their investment advice is "solely incidental" to their brokerage services.
The FPA has been leading the opposition against the ruling, stating it confuses consumers and allows brokers to skirt meaningful regulation. The organization says it expects a ruling soon on its lawsuit against the SEC, which seeks to eliminate the exemption.
In asking for the clarification, FPA officials said they are trying to address confusion that exists now that the exemption is in place. The organization also cited an investigative report in the April issue of Smart Money magazine that "documented numerous violations of the rule."
"Regardless of whether FPA prevails in its legal challenge to this rule, there is a cloud of confusion surrounding its reach and implementation," said FPA President Nicholas A. Nicolette. "The SEC will ultimately need to clarify for investors and brokerage firims what financial planning services can and cannot be provided by brokerage firms, no matter what the services are called."
In its letter to the SEC, the FPA asks for clarification on the following three points:
Whether a broker-dealer would fall under the Advisers Act when an agent is providing elements of a financial plan, such as retirement plans, estate plans and college education plans. The FPA argues some brokerage firms are avoiding the financial planning restrictions by offering customers segments of a plan that, when taken together, amount to comprehensive financial planning rather than brokerage services.
Confirmation that a broker-dealer is subject to the Advisers Act when its registered representatives recommend specific stocks, bonds or mutual funds to implement the asset allocation recommended in its financial plan.
Clarification about when the fee-based account disclosures required by the rule must be made to the client. The FPA maintains some brokerage firms are not giving prospective customers an opportunity to review the disclosure prior to signing an account agreement