The Financial Planning Association has praised the Securities and Exchange Commission for initiating a ‘fact-finding’ investigation into reported problems with fee-based brokerage programs. The SEC joins the NASD and New York Stock Exchange in investigating possible abuses of fee-based brokerage programs, which were created under a controversial SEC rule that was first proposed in 1999.
The rule, which was put into effect without formal adoption and is now the subject of a court challenge by the FPA, allows stockbrokers to advertise financial planning services and manage non-discretionary client portfolios for a fee without registering as investment advisers.
“We are very pleased that the SEC is investigating what appear to be substantive and potentially widespread problems associated with the fee-based brokerage programs,” says Duane Thompson, a FPA spokesman. “However, we believe that there is an easy fix, and that is to eliminate the problem by withdrawing a defective regulation. Adding cosmetic changes to the Emperor’s new clothes, such as disclosing that the accounts are not advisory accounts, have already been tried by Wall Street and do not work.”
The NASD is stepping up its investigation of problems associated with the rule. Since last autumn regulators have cited numerous problems with the rule, including suitability problems in determining an appropriate fee structure for brokerage customers, stockbrokers neglecting to monitor portfolio performance, and failure by some broker-dealers to assign fee-based accounts to brokers. The NASD also recently detailed new problems with the fee-based accounts where brokers are “double-dipping” by placing commission-based mutual funds in portfolios where an advisory fee is already being charged.