DC circuit vacates the fee‐based brokerage rule

Abstract

Purpose

The paper aims to explain the background and to discuss the implications for broker‐dealers of US Circuit Court of Appeals for the District of Columbia March 30, 2007 decision in Financial Planning Association v. Securities and Exchange Commission (FPA) vacating Rule 202(a)(11), which had exempted fee‐based brokerage accounts from the Investment Advisers Act of 1940 (the Advisers Act) under certain conditions.

Design/methodology/approach

The paper explains how the distinction between broker‐dealers and investment advisers seemed relatively clear in the past, how fee‐based brokerage accounts began to blur that distinction, how Rule 202(a)(11) allowed broker‐dealers to offer fee‐based brokerage accounts without complying with the Adviser's Act under certain conditions, how the FPA decision vacates Rule 202(a)(11), and potential consequences of the FPA decision for broker‐dealers.

Findings

The paper finds that if FPA stands, it will have broad implications for broker‐dealers that offer fee‐based brokerage accounts, as the Advisers Act contains a variety of requirements that do not apply to traditional brokerage accounts. Broker‐dealers should assess their fee‐based programs and develop strategies for complying with the provisions of the Advisers Act or restrict their programs to remove them from the reach of the Act.

Originality/value

Written immediately after the FPA decision, this paper provides essential guidance to broker‐dealers on how they will have to reposition their fee‐based programs if that decision stands.

Citation

Ericson, R.B. (2007), "DC circuit vacates the fee‐based brokerage rule", Journal of Investment Compliance, Vol. 8 No. 2, pp. 4-8. https://doi.org/10.1108/15285810710759425