“As a result of the SEC’s decision not to ask for a rehearing today, one million investors will be disadvantaged -- forced into accounts where choices are limited and costs to consumers can be nearly double,” said Marc Lackritz, SIFMA president and CEO. “SIFMA pledges vigorously to pursue a solution that will enable investors to have access to fee-based payment options and that will not force investors into a world of one-size-fits-all accounts.”
“The SEC helped popularize these accounts as an important step in aligning a broker’s and client’s interests. Their decision not to seek a rehearing leaves one million investors and their brokers to pick-up the pieces,” added Lackritz.
Due to the volume
of accounts and the logistics involved, many firms have reported to SIFMA that
four months will not be enough time to make the required transition.
The introduction of fee-based accounts flowed from the recommendations of the Tully Committee, a broad-based industry committee which was formed at the urging of the SEC. Fee-based accounts were first introduced in the late 1990s to provide investors with a different way to pay for brokerage services. For some investors, paying on a trade-by-trade commission basis was attractive; for others account-based fees were preferred. Morgan Stanley research suggests that since creating their Choice Accounts in 2000, clients have saved approximately $2.7 billion in cumulative commissions and that it would have cost clients over twice as much to do the same business on a commission basis. Today, fee-based accounts involve close to $300 billion in client assets.
Earlier this year, the D.C. Court of Appeals ruled in favor of the Financial Planners Association (FPA) in its case against the SEC, finding the SEC to have 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 exempted broker-dealers offering fee-based brokerage accounts from registering as advisers.
SIFMA then urged the SEC to ask for a rehearing, noting the court’s decision was based on narrow grounds and the court neither addressed the merits of fee-based brokerage accounts or the related public policy issues. The SEC has long supported the concept of fee-based brokerage accounts, even taking the unusual step of including a "no-action position" into its original rule proposal dating back to 1999.
SIFMA further believes that fee-based brokerage accounts are
not the type of services that the Advisers Act was intended to address, and
that the application of the Act is unnecessary given the extensive regulation
and supervision to which broker-dealers are already subject under the
Securities Exchange Act of 1934 and SRO rules, among others. Our members
and one million investors reasonably expect that the SEC will expeditiously
develop alternative solutions that will preserve this critical element of
investor choice.
