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FPA Sues SEC Over Merrill Rule

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Using strong and direct language, the Financial Planning Association threw down the gauntlet against the Securities & Exchange Commission and the wirehouses, saying it had filed suit against the SEC “challenging the substance of the final rule” made by the Commission on April 6 that made permanent the exemption that had given broker/dealers from regulation under the 1940 Investment Advisers Act. FPA President Jim Barnash made the announcement at a press conference in New York, saying his group had filed the suit on April 29 in the U.S. Court of Appeals for the District of Columbia, charging that the rule was “clear as mud” concerning where “the suitability requirements of a broker end and the rest of the financial plan begins.” The SEC had “erred in adopting a defective rule,” Barnash said. This is not a dispute, Barnash stressed, “about planners versus brokers, fees versus commissions, big companies and small companies,” but about protecting investors. While admitting that the rule did contain some “language that moves in the right direction,” Barnash charged that under its adopted rule, the SEC continue to allow “two kinds of advisory standards: one by brokers . . .subject only to a suitability standard, the other by advisors in an embedded fiduciary culture.”

The FPA is seeking to consolidate its new petition with its original suit filed last July, which had forced the SEC to make a final decision on the 1999 exemption, popularly known as the “Merrill Lynch” rule. Doing so, said Barnash, would allow the court to “review the rule itself, not simply the lawfulness of the SEC’s previous failure to act.” The public would have been better served, Barnash said, “if the SEC had abandoned the rule,” and it is asking the court to vacate the rule. The FPA’s outside counsel, Merril Hirsh of the Washington law firm of Ross Dixon & Bell, put it succinctly “We want the ’40 Act enforced; this regulation is contrary to the Act.”


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