Putting The Profession On The Map

Back in July when the Financial Planning Association filed a lawsuit against the Securities and Exchange Commission, many advisors could be forgiven for wondering if the FPA was losing its grip on reality.

Suing a regulatory agency seemed impractical and frivolous, especially for an association with the limited resources of the FPA. When a relatively small organization antagonizes the leading regulator of the financial services industry, some FPA members could easily see the move as dangerous.

Yet it now looks like the FPA‚s bold gamble is paying big dividends. The SEC has agreed to reopen for comment a proposed rule giving representatives at large brokerages an exemption from the regulations that registered investment advisors must deal with on a daily basis.

On the public relations front, the FPA has already won the battle. Articles and editorials in the Wall Street Journal, The New York Times and Business Week have accurately portrayed the proposed rule for what it is and depicted a David vs. Goliath scenario that works to the advantage of independent advisors.

The upshot is that right now it looks like the FPA is in a no-lose situation. Even if the SEC caves in to the giant wirehouses and hands them a Pyrrhic victory, the lawsuit has already put the FPA on the map in Washington. The move also positions financial planning as a profession concerned about more than its own narrow self-interest, a rarity in Washington these days.

To be sure, the powerful Securities Industry Association now is likely to put up a strong fight of its own. But at a time when a new SEC chairman, William Donaldson, is working hard to erase the ring around the bath tub his predecessor, Harvey Pitt, left on the agency, it‚s not at all clear why he would let a few SEC staffers and big brokerages push the agency to take an anti-consumer stance.

There isn‚t a lot of upside for the SEC to buckle. It‚s also not clear how much of its badly drained political capital the SIA wants to expend on an issue that could attract more adverse publicity for Wall Street.

Sources say that former SEC Chairman Arthur Levitt has reversed his view completely. Levitt, who ran the SEC when it proposed the rule and initially showed little interest in independent advisors‚ criticisms, urged attendees at TD Waterhouse‚s annual conference in February to renew their challenge in earnest. He also said several SEC commissioners would be sympathetic to independent advisors.

Apparently, even experienced watchdogs like Levitt and other commissioners at the SEC were shocked by the extent of the scandals on Wall Street that have been exposed since 2001. Making it easier for brokers to act as RIAs and then avoid the fiduciary responsibilities associated with it is just a bad idea.

Word has it that by the time you read this, others will enter the fray. The National Association of Personal Financial Advisors has not been its usual outspoken self on this subject, but that could change. Others suggest that the FPA enlist the help of the man the SEC fears most, New York State Attorney General Eliot Spitzer. "That [Spitzer] might help, but we want to be able to talk to the SEC after this is all over," one FPA board member remarks.

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