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Broker disclosure exemptions overturned

March 31, 2007|From the Associated Press

WASHINGTON — A federal appeals court Friday overturned a rule that allowed securities brokers to avoid some requirements faced by financial planners in advising customers, saying both groups must be held to the same standards to protect investors.

The 2-1 ruling by the U.S. Court of Appeals for the District of Columbia Circuit held that the Securities and Exchange Commission had overstepped its authority in adopting the rule in 2005. The Financial Planning Assn. had sued the SEC over the rule, saying that financial advisors and investment brokers acting as such should not be subject to two different regimes.

Brokers who charge customers a flat fee, rather than commissions on securities transactions, and act as financial advisors should -- like financial planners -- be required to disclose potential conflicts of interest to customers, the financial planners' group contended.

The Consumer Federation of America and a mutual fund watchdog group joined with the planners to challenge the SEC rule. The two-judge majority of the appeals court panel agreed. The ruling said the law governing investment advisors was intended "to protect consumers and honest investment advisors" and to establish standards of responsibility to act in the investor's best interest.

"The SEC has exceeded its authority in promulgating the final rule," the ruling said.

The decision marked the third time in the last few years that the appeals court has overturned an SEC rule.

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