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Fee-in-lieu gets slapped down,

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Mar 31, 2007 8:59 am ce-brokers/story.aspx?guid=%7B87884870%2D88B1%2D4689%2DA9E3% 2D29DB31FD4625%7D&dist=TNMostMailed

YORK (MarketWatch) – In a decision that could force brokerage firms to
reclassify hundreds of billions of dollars in client assets, a federal
appeals court Friday shot down a Securities and Exchange Commission
rule that allowed stockbrokers to sidestep stringent investment advisor
laws when giving financial advice for a fee.

In a 2-to-1 ruling, the U.S. Court of Appeals for the D.C. Circuit agreed with the Financial Planning Association, which sued the SEC in 2004, that the agency had overreached by exempting brokers from the Investment Advisers Act of 1940. That law requires anyone giving advice for a fee to adhere to a "fiduciary" standard of legal liability, which requires that advisors always put clients' interests ahead of their own.[/quote]

Now this is purely incidental....

Mar 31, 2007 1:18 pm


Mar 31, 2007 2:22 pm

I love commissions.

Mar 31, 2007 10:10 pm

Hey Allreit, that is an interesting thread title, what does it mean for wrap accounts at broker dealers?

Here is a quote from an article at the Financial Advisor web site. Looks like it won't have much affect, other than ( existing ) disclosure are registrations. Hard to believe wrap accounts at broker dealers would be bombed out of existence in 3 months - does anyone know the implications?

The securities industry has been pressing for nine months to re-paper its accounts, though Moisand argues that since most broker-dealers have registered investment advisors, the allotted three months should be enough time. “If you’re going to be out there practicing as a financial planner, you can’t expect the burden to be on the consumer,” Moisand adds.

Apr 1, 2007 2:32 am

Wrap accounts aren’t going to be affected. Advisors, however, that are to

be paid fees rather than commissions will be held to a higher standard of

care. Fiduciary responsibility will be the norm, and advisors at NASD

firms who offer such a platform will most likely have to document their

advisory services for each client.

This really targets the NASD firms who sponsor fee-based brokerage, vs.

fee-based advisory accounts. The fee-based brokerage accounts have

been flying under the radar screen for some time, and now they need to

essentially behave no differently than fee-based advisory accounts.

If you hold yourself out as a financial planning who is willing to provide

advice for a fee rather than a commission, you are now regulated as an

investment advisor.

Luckily, as the article states, most firms have an RIA as a part of their

business. Merrill, Wach, Smith Barney, etc., already have advisors who

participate in the advisory platform (fee for advice), however, they haven’t

been treated as fiduciaries, and were exempt under the Merrill Lynch rule.

That’s no longer the case.

In cases which involve fee in lieu of commission accounts, clients could

actually allocate the fees paid as a part of the cost basis on the stocks

they acquired during the year. In a fee for advice account, the fees can be

deducted (depending, of course…) on the client’s tax return.

I see little effect on wrap accounts - they’ll re-paper the accounts to read

that they are advisory accounts, with a bundled trading cost allocated

differently. Either way, they’ll be changing things a bit, but they won’t

miss a step. Most firms have known that this day would be coming,


I’m out of the BD environment. This ruling was only a matter of time…

If it walks like a duck, quacks like a duck… it’s a duck. Firms were

calling advisory relationships anything BUT advisory accounts for a long

time, hoping to avoid this type of mandate.

It’s a good thing.


Apr 1, 2007 5:11 am

Thanks, Captain.

Apr 2, 2007 4:38 pm

Here's RRmag's story on the ruling... emption/