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SIA Defends Need For Consumer Rule Compliance Etension

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The Securities Industry Association says financial services companies really do need extra time to comply with new federal financial planning and discretionary brokerage rules.[@@]

The SEC wants to apply Investment Advisers Act consumer protection rules to broker-dealer organizations that are providing financial planning services or true discretionary brokerage services.

The SIA, Washington, has asked the SEC to push the effective data of the new regulations to April 1, 2006, from Oct. 24.

A coalition of consumer groups led by the Consumer Federation of America, Washington, has written to the SEC to protest the request for a delay in enforcement of the new regulations, arguing that delays deprive investors of disclosures that might have alerted them to brokers’ potential conflicts of interest.

Now the SIA has sent the SEC a second comment letter, to respond to the consumer groups’ attack on the request for an extension.

An extension is necessary for firms to assess and comply with the new rules, SIA General Counsel Ira Hammerman writes in the letter, which is addressed to SEC Secretary Jonathan Katz.

“We understand that some organizations have questioned the brokerage industry’s need for an extension, but we cannot stress enough that an extension is necessary to allow firms to appropriately implement and comply with these aspects of the new rule,” Hammerman writes.

Firms affected by the new rule must review a great deal of information, including detailed information about huge numbers of customer accounts, to determine which accounts fall under the umbrella of the new rules, Hammerman writes.

“Most of our large member firms have scores of investment materials and reports that registered representatives use to service client accounts,” Hammerman writes. “In many, if not most instances, these materials and reports are made available to representatives in dispersed branches on an automated basis. Firms must review each of the material and reports to determine whether the related service is brokerage or investment advisory, and must draft disclosures based on the nature of service.”

On the issue of discretionary brokerage accounts, Hammerman notes that deciding which accounts fall under the Investment Advisers Act is merely the beginning of a long compliance process.

“For clients that determine to maintain discretionary accounts subject to the Advisers Act, firms will need to create and finalize investment advisory agreements, ADV filings and related advisory program client disclosures, internal policies and procedures, and most importantly, internal systems infrastructure and trade processing that are necessary to ensure that these accounts comply with the requirements of the Advisers Act,” Hammerman writes.


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