SEC Delays Final Decision on Merrill Lynch Rule

Paul Roye, the director of the SEC’s Division of Investment Management, said the Commission had received over 1,700 statements during the previous comment period on the rule this fall. Roye said “virtually all” the comments that supported making the exemption permanent came from B/Ds, while most of the comments opposed to the rule came from investment advisors, financial planners, and consumer groups, whom he said argued that the exemption failed to protect consumers. In its final rule-making process, the SEC staff called on the commission to provide better guidance on what constituted “incidental advice,” to mandate that all relevant brokerage company documents should “prominently” display that the relationship is a brokerage account that may or may not constitute a fiduciary relationship, and that all consumer disclosures should clearly address the difference between a brokerage and an advisory relationship. In response to a request for clarification, Roye said that SEC Chairman Donaldson asked the “$64,000 question: When does providing financial planning services not constitute an advisory service?

Reflecting some frustration on the part of the commissioners on failing to come to some closure on the rule, SEC Commisisoner Paul Atkins noted that “we’re confronted today by the ghost of Commission action and inaction,” and that “only litigation has forced us to address the issue.” The Financial Planning Association sued the SEC in U.S. District Court this fall over the rule.