"Priceless," is how Financial Planning Association (FPA) Chairman Dan Moisand characterized the association's federal appeals court victory today, forcing the Securities and Exchange Commission to rescind it's so-called "Merrill Lynch" rule.
While Moisand and other FPA executives declined during their press conference to disclose the actual tab for their four-year legal bill, sources put the final costs in the $100,000 range for the 29,000 member association. "It was easily absorbed in our budget, " says Moisand. "Even if we had lost, it would have been a victory, because it gave us a platform to talk about what responsibilities those in the professional community have to clients. A real financial planner is willing to put clients' interests first. We don't see it any other way."
Indeed the $100,000 may be a bargain considering how wide-ranging the impact of the FPA's victory might be. For starters, FPA executives say, the appeals court's decision forces the broker-dealer to stop selling fee-based accounts and advice without having to register as advisors. Brokers have sold an estimated shopping $300 billion in fee-based accounts in the past eight-plus years under the SEC-ordered exemption. Currently, broker-dealers will only have three months to "re-paper" these accounts, Moisand said.
"What we're going back to is the bright-line test that existed for consumers before 1999," says FPA Director of Government Relations Duane Thompson. "If a broker is offer advice for fees, they must be registered."
While the SEC declined to comment on the stunning defeat-the agency can ask the appeals court to review its ruling or ask the US Supreme Court to hear an appeal-attorneys and others familiar with the case said it's more likely the SEC will just "take its lumps and move on." FPA executives have intoned SEC officials not to fight this ruling or give the broker-dealer industry more time to re-paper their accounts. The securities industry has been pressing for nine months to re-paper its accounts, though Moisand argues that since most broker-dealers have registered investment advisors, the allotted three months should be enough time. "If you're going to be out there practicing as a financial planner, you can't expect the burden to be on the consumer," Moisand adds.
While the SEC argued before the federal appeals court that it had the right to create exemptions to congressional intent, the appeals court found that that the SEC had overstepped it's boundary in allowing brokers to sell fee-based accounts and investment advice without registering as advisors. "The court found that there was nothing in legislative history to support these broadened SEC exemptions," says FPA's attorney Merril Hirsh, from the Washington law firm of Ross, Dixon & Bell, LLP. "The court also found the SEC's attempt to make changes suspect because of their 60 years of interpreting the exemption a different way," Hirsch adds.
The next priority before the FPA, say its executives, beyond celebrating a hard-fought victory against the a federal agency the organization believed had overstepped it's bounds? "We're having many conversations and looking carefully at how we move our profession forward," says FPA President Nicholas A. Nicolette.