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October 27, 2004 at 08:00 PM
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The National Association of Securities Dealers, in proposing a rule to redefine what constitutes a branch office for brokers, is favoring large full service brokerages and placing an undue burden on those specializing in life products, according to an official with the American Council of Life Insurers.
Under current rules, branch offices are required to be registered with regulators from the NASD, the Securities and Exchange Commission and their state regulators, and are subject to inspection. Additionally, there are rules that require a supervisory structure within each branch office. These offices are presently defined by the functions that are undertaken there.
As an example, Carl Wilkerson, vice president and chief counsel, securities and litigation, for the ACLI, noted that brokers in a life specializing office do not take customers’ money and do not hold their accounts open. Instead, brokers focused on life products collect checks from the customers that are made out to the life insurance company.
However, under the proposed rule, that definition would be changed to include any office with a staff of one or more, Wilkerson explains, adding that this fails to take into account key differences between brokers specializing in life products and more full service brokers such as Merrill Lynch.
“Their business model is that they tend to have a few large branch offices,” Wilkerson said of the full service brokerages, adding that life product brokers are more likely to have numerous, geographically dispersed offices of one or two people. Also, life brokers offer a “very narrow range of securities,” Wilkerson noted, while full services brokerages have a much wider array of options. As such, he said, these smaller offices do engage in many of the functions that define a branch office.
Another requirement of branch offices is that they have a supervisory structure, which Wilkerson noted would constitute a major financial burden for a small office suddenly required to staff that structure. Additionally, those small offices would have to pay fees to the NASD for regulatory inspections.
