Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Saturday, March 31, 2007

D.C. Circuit Throws Out SEC Rule on Fee-Based Accounts

Financial Planning Association v. SEC, 2007 WL 935733 (Mar. 30, 2007):

The D.C. Circuit (by a 2-1 decision) threw out the SEC's rule that exempted broker-dealers offering fee-based accounts to their customers from regulation as investment advisers.  Because broker-dealers have an exemption under section 202(a)(11)(C) of the Investment Advisers Act where their advice is "solely incidental" to their business as broker-dealers and they receive no "special consideration" for their advice [i.e., for commission-based accounts], the SEC has no authority to grant broker-dealers another exemption under section 202(a)(11)(F), which gives the SEC authority to exempt "other" persons not within the intent of the statute.  The court relied principally on the statutory language,  but it also looked to the legislative history of the IAA and the agency's longtime policy prior to adopting this rule, initially on a temporary basis to allow broker-dealers to offer fee-based accounts.  In recent years, brokerage firms have heavily marketed fee-based accounts as revenues from commissions have dropped.

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