NAPFA Encouraged by SEC's Intent on Broker-dealer Rule

SEC moving in the right direction, but they still need to protect the consumer," says Chairman

Arlington Heights, IL (PRWEB) December 25, 2004 -- The National Association of Personal Financial Advisors (NAPFA) was encouraged that the Securities and Exchange Commission (SEC) is moving in the right direction by making a decision to withdraw the exemption for broker dealers, the so called Merrill Lynch loophole that has been in place since 1999, and indicating an open comment period prior to adopting a new rule by April 15, 2005. The SECs rule is called Certain Broker-Dealers Deemed Not To Be Investment Advisers, and the SEC announcement can be found at http://www.connectlive.com/events/secopenmeetings/.

I am glad that the SEC listened to the comments of so many financial services organizations and consumer groups on this critical issue," said Jamie Milne, NAPFAs chairman. The SEC is supposed to be in the business of protecting consumers, not broker-dealers. We are pleased that they are trying to promulgate a rule that in beneficial to consumers while clearly differentiating the differences between the advisory business and transaction business."

A new rule will be released in January or as soon as the Office of Management and Budget (OMB) approve the current draft of the rule. At that time, the SEC rule will be open to the public for comment prior to final promulgation before the SECs April 15, 2005 target date.

The changes in the final rule still need to protect the consumer. They need to ensure that people seeking financial services understand the difference between a broker-dealer who works for his company, and an investment advisor or financial advisor who works for the client," said Milne. The issues of disclosure and fiduciary conduct must be clearly resolved."

As the nations leading professional association of fee-only financial planners for more than 20 years, NAPFA has advocated for better disclosure and higher fiduciary standards for all financial professionals. I cant imagine a more important consumer issue in the financial services profession," said Ellen Turf, NAPFAs CEO. At a time when consumers are reeling from one investment scandal after another, I expect and hope that the SEC will come down on the side of disclosure by all professionals who offer investment advice."

In September 2004, NAPFA submitted comments on the rulemaking. NAPFA reminded the SEC that the Commission clearly restricted its broker-dealer exemption to brokers who do not provide investment advice. However, that restriction is routinely ignored today. Even a cursory review of current advertising and marketing programs by broker-dealer firms shows that they go far beyond the boundaries set by that exemption.

NAPFA has identified numerous examples of broker-dealer firms advertising to consumers that they provide advisory services. Yet, these firms are telling the government that they should not be treated as investment advisors or financial advisors. NAPFA continues to advocate for full disclosure and for having a level playing field for anyone giving investment advice. If youre offering investment advice and financial advice, you should be regulated as an advisor. Its as simple as that," said Milne.

In light of the new regulation, NAPFAs Board of Directors is weighing its options for ensuring that consumers clearly understand the differences between advice and transactions. NAPFA supports registration under the 1940 Investment Advisory Act for any broker who gives investment advice. NAPFA does not support the current exemption and believes that the bright line" stated by the commissioners this morning be crystal clear to the consumer. A recent survey by TD Waterhouse found that

63% of investors believe that both stockbrokers and investment advisors are required to disclose all conflicts of interest prior to offering financial advice 58% of all consumers thought that all people in the financial services had a fiduciary responsibility to the client (even though that is not true), while 88% stated that they would seek a fiduciary, not a registered rep dealing solely in transactions or advice that was incidental" to the transactions if they knew and understood the difference!"

We will continue to work with other organizations on this issue. The Financial Planning Association, the Consumer Federation of America, and Fund Democracy are to be commended for their efforts," said Turf. Im pleased that some companies in the industry, such as TD Waterhouse, also are taking a strong stand in favor of balanced, equal regulation of broker-dealers and investment advisors. TD Waterhouses study that was released in December showed how the advertising by broker-dealers has succeeded in confusing consumers about the difference between investment advisors and brokers."

To learn about NAPFAs efforts to improve disclosure of fees and any potential conflict of interest by all professionals working in the financial services industry (including financial planners, investment advisors, and insurance agents), contact Michael Joyce at mjoyce@mjoyce.com or Ellen Turf at turfe@napfa.org.

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