The Securities and Exchange Commission has shared the findings of a RAND Corporation study that compares how different regulatory systems for broker-dealers and investment advisors affect investors. The study’s release prompted a call from the Securities Industry and Financial Markets Association (SIFMA), representing some 650 broker-dealers and related organizations, to maintain consumer choice. The Financial Planning Association, for its part, is asking the SEC to stage an open forum to discuss the findings in the interest of investor protection.
It’s Here!For the complete text of both the summary and full conclusions of the RAND report on broker-dealers and investment advisors, see:www.rand.org/pubs/technical_reports/2008/RAND_TR556.sum.pdfwww.rand.org/pubs/technical_reports/2008/RAND_TR556.pdf
What Your Peers Are Reading
In April 2007, a federal court of appeals ruled in favor of the FPA in its case against the Securities and Exchange Commission over the so-called “Merrill rule” or “BD rule.” The court says the SEC exceeded its statutory authority under Section 202(a)(11)(F) of the Investment Advisers Act of 1940 when it adopted Rule 202(a) (11)-1, which exempts broker-dealers offering fee-based brokerage accounts from registering as advisors.
The SEC Act of 1934 (48 Stat. 881) regulates brokers and dealers, and the IAA Act of 1940 (54 Stat. 847) regulates investment advisors, explains the RAND report. “In light of these differences in definitions and regulations, the dividing line between broker-dealers and investment advisors has always been an important one. However, trends in the financial-service market since the early 1990s have blurred the boundaries between them,” the document says.
The SEC is poised to re-examine regulations covering brokers and investment advisors in light of this court decision and in consideration of the factual analysis in the 220-page RAND report, which the SEC commissioned. RAND is a government-funded research group based in Santa Monica, Calif.
“The RAND study confirmed that investing and saving for the future can be a complex and occasionally confusing endeavor,” says Ira Hammerman, senior managing director and general counsel of SIFMA. “But we must recognize that some of the confusion appears related to the broad range of customer choice. Any efforts to reduce confusion must ensure we don’t diminish customer choice.”