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Wall Street Roundup

SEC won't fight ruling on brokers

May 15, 2007|From Bloomberg News

The Securities and Exchange Commission said Monday that it wouldn't fight a court decision that would place new restrictions on Wall Street brokers overseeing about $300 billion in clients' money.

In March, a federal appeals court overturned SEC regulations permitting brokers to offer some fee-based services without adhering to stiffer customer-protection requirements other investment advisors have to follow.

The SEC decision not to appeal could lead brokerages to stop offering accounts that charge an annual fee rather than a per-trade fee. There are about 1 million such accounts, representing about 20% of all retail brokerage accounts, according to the Securities Industry and Financial Markets Assn., a brokerage trade group.

People who have such accounts will now be forced into "one-size-fits-all" offerings where "choices are limited and costs to consumers can be nearly double," said Marc Lackritz, president of the trade group.

Under SEC rules, investment advisors who receive a fee for their services are required to place the interest of customers above their own and to disclose conflicts of interest to clients. Congress exempted brokers from those requirements as long as their investment advice was "solely incidental" to serving customers and didn't result in a separate charge.

The SEC in 1999 proposed a rule change to exempt brokers who offered fee-based accounts from registering as investment advisors. The agency's five commissioners unanimously adopted the rule in 2005.

The Financial Planning Assn., a trade group representing investment advisors, sued the SEC, arguing that it didn't have the power to carve out an exemption for brokers. The U.S. Court of Appeals for the District of Columbia agreed in a 2-1 decision.

The SEC said Monday that it would ask the court to stay the ruling for 120 days to give investors and their brokers time to respond. The agency also said it would consider whether it needed to adopt new rules regarding fee-based accounts.

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