The Investment Advisers Act limits brokers’ exemption from having to register as investment advisors and adhere to fiduciary standards to those who provide only incidental investment advice and accept no special compensation, such as fees, for their work. The tremendous surge in very profitable broker-dealer, fee-based advisory accounts since FPA won its lawsuit, coupled with the SEC's "best-interest" proposal, has raised the specter of more litigation against the SEC.
That's why some in the financial planning industry have drawn hope from Kavanaugh's decision in the FPA's case.
“President Trump was looking for a nominee who would be loyal to the Constitution and is a strict constructionist to the law, without trying to fashion anything new or expansive. He got that in Kavanaugh,” said Duane Thompson, who as former managing director of the FPA’s Washington, D.C., office helped manage the FPA’s successful lawsuit against the SEC.
“Judge Kavanaugh and Rogers both looked very narrowly at the Advisers Act and said the SEC overreached in trying to fashion a new exemption for brokers,” Thompson said. “They looked at the intent of Congress, which was to eliminate as much as possible conscious conflicts of interests on the part of advisors when providing advice to investors.”
“It was a narrow interpretation of the law,” said Thompson, president of Potomac Strategies, a policy consulting firm outside Washington, D.C. “That seems to fit in with what Trump wants to see.”