For Release: September 16, 2008

WASHINGTON, D.C.… The Financial Planning Association^® (FPA^®) today urged the Securities and Exchange Commission (SEC) to delay adoption of a permanent rule governing so-called principal trades without conducting a study clearly showing its benefits to investors and not Wall Street.

"To put it plainly, the Commission shouldn't reward aberrant behavior by Wall Street with a free regulatory pass," said FPA's letter, referring to the investment banks' role in the current subprime mess.

Principal trades are securities transactions where a broker sells stocks or bonds from his firm's own inventory, rather than buying or selling on the open market. The SEC has noted that the practice sometimes opens the door to significant conflicts of interest if a firm dumps devalued stocks or bonds from inventory into a customer's portfolio.

The temporary rule (set to expire at the end of 2009) was adopted last year following a successful legal challenge by FPA in which a federal appeals court ruled that fee-based brokerage accounts were advisory accounts and thus subject to the Advisers Act of 1940. The rule permits certain broker-dealers, including the investment banks that peddled mortgage-backed securities to the public, to streamline the notice and consent process for executing principal trades.

The FPA letter noted that it did not oppose the principal trading rule when it was adopted, but reiterated its concern with the inherent and longstanding conflicts of interest and risks involved in principal trades. "Any rule easing the principal trading restrictions should be very limited in duration and scope, and must be consistent with the principal intent of the Advisers Act, namely investor protection," said Duane Thompson, FPA managing director, in the letter.

FPA recommended that the SEC assess firms' compliance with the letter, as well as the spirit of the temporary rule, and urged the agency to either extend the temporary rule to conduct an appropriate study or not adopt a final rule absent supporting data.

Following the implementation of the temporary principal trading rule, FPA published a consumer guide to principal trades.

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