“By differentiating between the activities involved in servicing a brokerage account and an advisory account, the SEC continues its support of fee-based arrangements,” said SIA Vice President and Associate General Counsel Michael Udoff. “Broker-dealers should be able to offer these arrangements, which are becoming increasingly popular among investors, without the addition of another layer of regulation.”
Broker-dealers have increasingly offered customers the option to pay for their brokerage services, in whole or in part, through fees calculated based on the assets in the account. This was encouraged in a 1994 report by the Committee on Compensation Practices (“The Tully Committee”), which viewed this arrangement as a way to better align the interests of the clients and the brokers. These accounts are already subject to extensive regulations covering disclosure of conflicts of interest as well as requirements that the registered representative’s recommendations be in the best interests of the client.
“The fact that certain brokerage accounts involve payment of an asset-based fee rather than commission should not automatically require them to be regulated as advisory accounts,” Udoff said. “The additional regulation is a disincentive for firms to offer this arrangement and would limit investors’ choices in how they compensate their registered representative.”
SIA’s comment letter also responds to recent suggestions by the Financial Planners Association that registered representatives are subject to a lower regulatory standard than financial planners, or adoption of this rule would erode investor protection. “Both financial planners and registered representatives are held accountable for putting the interests of their clients first,” said Udoff. “The competition that exists today benefits investors by providing them with a wide range of options in the level of services they receive from their investment professional and how they pay for the services received. Elimination of the exemption for fee-based accounts from financial advisory oversight would stifle this and harm investors.” Information on the differences in the regulation of investment advisory and brokerages services is available at: http://www.sia.com/press/FAQs/html/regulatorydifferences.html.
A copy of the letter is at: http://www.sia.com/2004_comment_letters/2868.pdf
