Financial advisers fear that a proposal backed by the Financial Planning Association that would allow brokers to make principal trades in their fee-based accounts would result in a new loophole that brokers can use to skirt investment adviser regulations, InvestmentNews reports.
Last week, the National Association of Personal Financial Advisors of Arlington Heights, Ill., sent a letter to the Securities and Exchange Commission expressing “strong reservations” about granting relief for broker-dealers for principal trades.
The main difference between current regulations and the proposal is that brokers wouldn’t have to provide written notice before they made principal trades, Mr. Thompson said. Instead, they could give clients oral notice, and the clients would have to give them permission orally before each trade were made.
“Brokers have wanted relief from this for decades,” says Robert Plaze, associate director of the SEC’s division of investment management. “The relief that is going to be drafted is very modest.”
While the brokerage community had wanted fee-based brokerage accounts to remain a viable option, “we feel this preserves many of the most important benefits for many of the 1 million consumers who hold them,” says Travis Larson, Washington-based spokesman for SIFMA, which also has an office in New York.