Securities Law Prof Blog

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

Tuesday, August 18, 2009

FPA Asks SEC to Clarify FINRA's Authority over Financial Planning Activities of Broker Dealer

On August 17 the Financial Planning Association (FPA) wrote to the SEC questioning the authority of FINRA to bring an enforcement action against a dual registrant (Ameritas) relating to its marketing of misleading financial plans.  According to FPA, financial planning  is investment advisory activity subject to the Investment Advisers Act and over which FINRA has denied authority to regulate.  Thus, FPA asks two questions:

1. On what basis of statutory authority, and to what extent, does the SEC permit FINRA to take enforcement action for misleading or fraudulent financial planning activities of brokerage firms separate from the IAA; and
2. Where financial planning activity is clearly under the jurisdiction of the IAA, does the SEC have a policy in place for FINRA to refer cases?

FPA also notes that in congressional hearings on the Madoff scandal, FINRA testified that it had no authority over Madoff's investment advisory business: "We do not believe FINRA can have it both ways, claiming on the one hand that it had no authority over a highly publicized regulatory failure, Madoff, and on the other, clear and unambiguous oversight over the development and marketing of financial plans by an Ameritas broker."

FPA raises good questions that again illustrate the importance of devoting serious attention to the appropriate regulation of all financial professionals.  Let's hope it does not play out as just another turf war.

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