From the June 2007 issue of Boomer Market Advisor • Subscribe!

June 1, 2007

A technology take on the Merrill Rule

At the end of March, the U.S. Court of Appeals for the District of Columbia ruled that the Securities and Exchange Commission overstepped its bounds on the so-called Merrill Rule. The rule originally allowed registered representatives to hold themselves out as investment advisors without requiring them to act as fiduciaries. The court's decision to overturn it is seen as a victory for the Financial Planning Association, the members it represents and the investing public as a whole.

Though not as widely discussed, the original language of the broker/dealer exemption rule also stated that if broker/dealers held themselves out as a financial planner, or as providing financial planning services, they must register as investment advisors under the Investment Advisers Act. Firms responded by limiting the financial planning capabilities they provided to reps and were careful not to represent financial assessment tools as providing financial planning services.

I had an opportunity to speak with several industry professionals to get their thoughts on what the ruling means from a technology standpoint. I also spoke with providers of planning software to gauge how this affects the use of their platforms by firms that were initially impacted by the broker/dealer exemption rule, and about their future product development plans. The consensus among the industry professionals I spoke with is that the ruling will not impact the financial planning software landscape. Firms are moving ahead despite the ruling.

"A year ago we introduced a product called MoneyGuidePro Broker for use in a non-advisory environment to help firms stay within the regulations," says Bob Curtis, chief executive officer of MoneyGuidePro. "Although it will be nice to get some clarification around this issue, we have built our product in a flexible and modular fashion such that firms can customize the disclosures, the levels of entitlement and goals, so that they can tailor it to their liking."

Linda Strachin and Dale Lacombe of EISI, which supports the NaviPlan and Financial Profiles products, say that despite the confusion that may have been generated by the ruling, the customers they are working with are not holding off in moving forward with implementation plans.

"No one is going to step back," Strachin says. "Consumer demand for fee-based planning is such that we don't expect any negative impact wherever this comes out."

She added that the marketplace had built in the expectation that this ruling could be overturned and that firms had taken the necessary steps to ensure they were compliant either way.

The ruling will make it easier for firms to offer financial planning services and provide registered representatives with more options. One investment professional I spoke with said the process that his firm had put in place to centralize financial planning services after the broker/dealer exemption ruling first came out was burdensome. He went on to say that some investment professionals have taken the initiative to service their customers in a more expeditious manner. Whatever the outcome, the financial planning software providers I spoke with are confident they have their bases covered.

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