Certain broker‐dealers deemed not to be investment advisers: background, summary and status of new rule

Abstract

Purpose

The aim of this article is to provide a description of the rule proposals and other events that preceded the SEC's adoption of the 2005 Final Rule, a summary of the terms of the 2005 Final Rule, and a brief update regarding the status of the 2005 Final Rule.

Design/methodology/approach

Describes the SEC's 1999 proposed rule, “Certain Broker Dealers Deemed Not to Be Investment Advisers,” questions that led to that proposed rule, commentary on that proposed rule regarding advisory activities for which broker‐dealers receive special compensation, commentary regarding differences between the regulation of broker‐dealers and the regulation of investment advisers, commentary regarding investors' understanding of the differences between broker‐dealers and investment advisers, the five‐year period without a formal rule, the 2005 Proposed Rule, the 2005 Final Rule, and concerns that remain after issuance of the 2005 Final Rule.

Findings

The Chairman of the SEC directed the SEC staff to investigate and report within 90 days on ways in which the policy issues raised by the 2005 Final Rule could be addressed. In addition to the investigation of issues raised by the 2005 Final Rule by the SEC staff, and although the 2005 Final Rule was adopted, to some extent, in response to the lawsuit filed against the SEC by the Financial Planning Association (the “FPA”) in July 2004, the FPA filed a new lawsuit against the SEC on April 28, 2005.

Originality/value

A useful summary of the background and remaining issues related to the SEC's 2005 Final Rule on application of the Adviser's Act to broker‐dealers offering certain non‐traditional brokerage programs.

Citation

Green, E.C. (2005), "Certain broker‐dealers deemed not to be investment advisers: background, summary and status of new rule", Journal of Investment Compliance, Vol. 6 No. 2, pp. 10-19. https://doi.org/10.1108/15285810510644820