SEC Puts Off Broker Adviser Registration Issue until April

December 22, 2004 ( - Even though they won't yet have to register as investment advisers with federal regulators, Wall Street brokers can continue to sell investment advice at least until April 15, federal securities regulators said Wednesday.

The US Securities and Exchange Commission (SEC) exempted the brokers from registering under the SEC’s Adviser Act until mid-April, when the temporary order expires, Reuters reported.

By that time, regulators said, the commission hopes to have taken final action on a permanent rule aimed at resolving a long-standing question, which is the extent to which brokerage advisers should be held to the same regulatory standards as independent advisers.

“This is a very difficult area and one where we’re trying to accommodate a gradual shifting in the way that services are paid for,” SEC Chairman William Donaldson told reporters after a public meeting of the commission, according to Reuters.

At the meeting, the SEC voted to seek public comment for 30 days on a proposed permanent rule. The temporary rule was meant to satisfy a court-imposed deadline for SEC action by year-end on a problem that has been on the SEC’s agenda since 1999.

The business of selling investment advice was once clearly delineated from the brokerage business. Advisers were paid flat fees by clients, while brokers got sales-based commissions. But that began changing a few years ago when Wall Street, pressed by competition to diversify beyond its traditional base of investment banking and underwriting, started selling fee-based brokerage accounts. These accounts today hold about $250 billion of customer assets, the SEC said.

An independent advisers group recently sued the SEC, pushing for a ruling about whether brokers would be allowed to continue holding themselves out as advisers. For its part, the SEC staff has recommended a permanent rule that would force brokers to expand disclosures they give to investors “to address the confusion that exists regarding differences between brokerage and advisory accounts,” said SEC Investment Management Division Director Paul Roye. In addition, the SEC rule would draw clearer lines about when brokers assume the fiduciary duty obligations of advisers.