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Regulation and Compliance > Federal Regulation > SEC

Clarity Over SEC Rule 202 (a) (11)-1?

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Amid industry confusion and concern over the SEC’s broker/dealer exemption rule, the Villanova University School of Law hosted a summit on February 21 to discuss, among other things, the B/D’s role in complying with the SEC if acting as a fiduciary and also, the constituency of a financial plan.

“Not to sound trite about it, but if it quacks like a duck it’s most likely a duck,” said panelist Joseph Del Raso, an attorney with Pepper Hamilton LLP in Philadelphia, referring to spotting a financial plan. “As illogical as our law seems, don’t throw logic out the window. If it seems like you are putting a financial plan together, you probably are.”

Several advisors at the summit questioned the clarity of the SEC’s rule, concerned that the fiduciary role could be open to interpretation and that the subjective nature of it could result in penalties from the SEC.

Dually registered advisors expressed concern over how the SEC would determine when the advisor role of the relationship with a client ended and when the B/D role began.

William Meck, a senior assistant administrator of regulation with the SEC’s Philadelphia district office, said that the SEC would not come down hard if it appeared that the B/D had promulgated clear direction to its reps and was not intentionally trying to dodge the rule.

Meck said, half jokingly, that the SEC’s explanation of the rule was a bit confusing and that an exact test of when an advisor is conducting financial planning doesn’t really exist.

“We’re protecting clients from people who are giving the impression that they are investment advisors and not complying with the act,” Meck said. “A financial plan as I’ve always seen it is a roadmap of your life–a long term solution with suggestions at mileposts along the way to perhaps make changes.”

Trying to provide further clarification, Meck pointed out that if a B/D’s rep had merely assisted a client with long-term economic goals and analyzed their current financial situation, they could avoid registering as an investment advisor.

However, if the advisor had prepared a comprehensive program for the client, then the advisor would have assumed a fiduciary role and would need to register.


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