Monday, April 02, 2007

Appeals Court Strikes Down SEC’s ‘Broker-Dealer Rule’, aka 'The Merrill Rule'

This is really, really important. Brokerage services, which may involve "incidental" advice, are the service of buying and selling. You can spin that, you can invent new names for the same old deal, you can work hard to keep the client willing to pay, but it still is buying and selling. Brokers are not, repeat, NOT fiduciaries. A fiduciary advisor places your interests ahead of getting a big commission or his own needs. He makes a good living because enough clients are wise enough to find him. The built-in conflicts of interest for a commission or "fee-in-lieu-of-commission" (wrap account) industry dictate that it is that way. Investment advisory services are a completely distinct thing. It's about time. The Financial Planning Association is happy. The big brokerages are going to have to change some things and perhaps change some thinking. it will be interesting to see how they spin it to the public. it's about the public, really, not the advisors and the brokers. People should be able to know what they are paying for: Trading, or advice. Of course, an appeal by the brokers to the US Supreme Court is possible, and would stave off implementation. Whether that would be well received by the investing public is open to question.

Quiz: Do you know what type of arrangement you have with your broker or investment advisor? Are you clear on the difference between paying for investment advisory services and say, a wrap account? a low-fee advisor will typically charge you less than the typical charge for a wrap account, or for a separately-managed account ("SMA") deal, two types of deals pitched often by brokers.

UPDATED BREAKING NEWS: Appeals Court Strikes Down SEC’s ‘Broker-Dealer Rule’: Financial Planning Association wins lawsuit to nix Merrill Rule and subject all fee-based accounts to regulation by the Advisers Act of 1940.

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