The Securities Industry Association (SIA) praised the Securities and Exchange Commission (SEC) for extending the compliance date for implementation of the financial planning and discretionary account provisions of the rule related to fee-based accounts.
“Everything worth doing is worth doing well, and today the SEC recognized that given the complexities of the rule, consumers will benefit if the securities industry is provided with additional time to implement these provisions,” said Marc Lackritz, president of SIA.
On July 26, SIA requested an extension of the October 24, 2005 deadline for the industry to implement changes that will be necessary to comply with the financial planning (paragraph (b)(2)) and discretionary brokerage (paragraph (b)(3)) portions of the fee-based accounts rules.
The process for securities firms’ compliance with these rules is complex. Under the financial planning rule, broker-dealers are potentially required to develop new disclosures, redraft contractual language, and create a process for producing, delivering, and processing these new documents. Typically, it takes considerable effort and time for a broker-dealer to introduce and disseminate even minor changes in the language of a contract or disclosure statement. Computer models or programs may also need to be adjusted to allow firms to comply with the rule.
Under the discretionary brokerage portions of the rule, broker-dealers need to review all accounts in which discretion is exercised in order to identify those not subject to the rule’s requirements because discretion is merely “temporary or limited.” This review of individual accounts is a labor-intensive and time-consuming process. Once the initial review is complete, broker-dealers must notify clients whose accounts are “discretionary” under the Rule. Those clients will need time to determine whether they want to maintain non-discretionary brokerage accounts or discretionary investment advisory accounts. Once a client determines the type of account relationship he wishes to have with a firm, broker-dealers will need time to convert certain accounts into advisory accounts by redrafting contracts, creating a process for delivering, negotiating, and obtaining client signatures on these documents, and recoding the accounts once the documents are returned to the firm. Finally, firms will need to ensure that investment advisory accounts and the representatives offering them comply with all of the requirements under the Advisers Act.