• November 16, 2007 -- Response by FPA President Nick Nicolette to recent comments from Citi Global Wealth Management CEO, Sallie Krawcheck
• May 17, 2007 -- SEC Motion for a Stay of the Mandate in FPA v. SEC
• Broker-Dealer Rule Fact Sheet
• April 24, 2007 -- Coalition Letter to SEC Chairman Christopher Cox (PDF)
• March 30, 2007 -- U.S. Court of Appeals for the District of Columbia Circuit Ruling on the Broker-Dealer Rule (PDF)
• March 30, 2007 -- Press Conference recording featuring FPA Chair, Dan Moisand, FPA President, Nick Nicolette, Director of FPA's Washington Office, Duane Thompson and FPA's lawyer, Merril Hirsh
• March 30, 2007-- Statement from Consumer Federation of America regarding Broker-Dealer Rule Verdict
• March 14, 2007 FPA letter to SEC requesting guidance on "financial planning" restrictions in broker-dealer rule.
• FPA executive summary regarding current SEC guidance, Jan. 10, 2007
• Oral arguments scheduled for October 5, 2006
• FPA Reply Brief fiiled with D.C. Circuit Court of Appeals in FPA v. SEC on May 25, 2006
• SEC Brief filed with D.C. Circuit Court of Appeals in FPA v. SEC on May 11, 2006
• Opening Brief filed with D.C. Circuit Court of Appeals in FPA v. SEC on March 23, 2006
• Subject: Final implementation deadline of Broker-Dealer Rule
• December 16,2005 -- SEC Staff Letter to SIA Interpreting B-D Rule
• February 7, 2005--FPA Files New Comment Letter on B-D Rule; Requests Transition of Fee Accounts to Advisers Act
• September 22, 2004 -- FPA supplemental comment to SEC on proposed broker-dealer exemption rule
• FPA Ad that appeared in September 10, 2004 Money & Investing section of the Wall Street Journal
• Petition for Review filed in FPA v. SEC on July 20, 2004
• Statement by FPA President Elizabeth Jetton at National Press Club, July 20, 2004
• FPA News Release "FPA Files Legal Challenge to SEC Regulation Exempting Brokers", July 20, 2004
• Summary of Differences in the Treatment of Clients Between the Proposed Rule and the Advisers Act
• FPA Membership Survey on Broker-Dealer Rule
• Link to SEC Comment Letters

Subject: Final implementation deadline of Broker-Dealer Rule

Dear Fellow FPA Members:

FPA’s Board of Directors feels it is important to communicate with our members whenever significant issues are at stake. This is particularly true in light of our members’ continued strong support for FPA’s longstanding position against the Securities and Exchange Commission’s (SEC) Broker-Dealer Rule, including our active legal challenge against the SEC. Final implementation of the Rule is scheduled for Jan. 31, 2006. With enactment less than two months away, here’s an update regarding FPA’s ongoing efforts.

Starting January 31, assuming the SEC does not agree to another deadline extension request from the brokerage industry, implementation of the Broker-Dealer Rule will require all brokerage firms to transfer brokerage accounts to a sub-adviser or affiliated investment adviser in instances where the broker previously maintained discretion, was party to an advisory agreement, claimed to be a financial planner or offered financial planning services, or delivered a financial plan to a customer.

Background
In mid-April, the SEC approved an exemption for brokerage firms from the Investment Advisers Act of 1940 that largely permits them to provide financial planning services to the public using different marketing terms — and without the fiduciary and disclosure protections of the Advisers Act. FPA countered this action by filing a legal challenge in the U.S. Court of Appeals for the District of Columbia Circuit on April 28. We have asked the court to vacate the Rule and thereby restore regulation of financial planning activities under the Advisers Act.

We are still awaiting a schedule of written and oral briefings from the court before proceeding. Meanwhile, several consumer and regulatory groups have filed written notices with the court of their intention to submit amicus, or “friend of the court” briefs supporting FPA’s position. These organizations include the Consumer Federation of America, Fund Democracy, Public Investors Arbitration Bar Association, and the North American Securities Administrators Association. FPA greatly appreciates their support. No organizations will be filing supporting briefs on behalf of the SEC. In addition, support from our membership and vast agreement from the consumer and trade media have provided strength to our position. Of the nearly 2,500 comment letters filed with the SEC regarding the Rule proposal, most were from FPA members, and 99 percent opposed the Rule.

FPA’s position on the Rule has not changed since the Rule was first proposed in 1999. Our view is that the Rule is so flawed that it can’t be fixed unless the SEC establishes clear boundaries on financial planning and clearly communicates these limits to the brokerage industry. The Rule in its adopting release fails to describe the differences between the services provided by brokers and financial planners, leaving considerable confusion among consumers. We remain troubled that under the current Rule, many brokerage firms continue to aggressively market financial planning services under misleading marketing terms or that they could attempt to avoid the intent of the Rule by offering no-cost financial plans or disclaiming that their retirement, estate or education planning services are part of the financial planning process.

Notwithstanding our concerns, we continue to talk with the SEC commissioners and other key industry leaders, seeking a way to address our shared goal to expand the delivery of financial planning through large financial services firms without compromising our values established under CFP Board’s Code of Ethics and Professional Responsibility. We have provided the SEC with draft guidelines that would clarify what can be marketed as financial planning and help the public differentiate between fiduciary and sales regulation when similar services are marketed.

FPA carefully monitors industry trends and finds some effects of the rulemaking encouraging and others that unfortunately might result in continued consumer confusion and setbacks to the development of a profession. We are encouraged that some brokerage firms have stated that they will register their sales reps as investment advisers when offering financial planning services. FPA continues to work with many larger financial institutions on ways to deliver advisory services that comply with CFP Board’s strict Code of Ethics. We applaud these firms for stepping up to the challenge. This was not an easy choice for FPA members to make decades ago when the SEC determined that financial planners needed to be registered as investment advisers. We salute those who step up and make that same decision today.

On the other hand, we are very concerned that some brokerage firms might respond to the Rule by forcing their registered representatives to drop their hard-earned CFP certification from their letterhead, business cards and other marketing communications. Apparently, some firms feel that the representatives would be deemed to be holding out as financial planners, triggering the need for adviser registration and imposing the incumbent fiduciary responsibilities such as placing the clients’ interests first and providing full disclosure. We believe this short-sighted view would harm consumers by reducing the pool of qualified advisers and, moreover, harm their firms’ bottom line. We believe a better choice would be for firms to register the certificants who actually do planning and to restrict marks use only by representatives who use the marks merely for marketing purposes.

Our Board of Directors is carefully monitoring the situation. If the Rule successfully clears up confusion between brokerage and financial planning services, we will evaluate the need for continued litigation. Meanwhile, we continue to strongly support one credential, the CFP marks, and one profession for the delivery of competent, ethical financial planning.

On behalf of FPA, I thank you for your continued support of our efforts and the financial planning profession. FPA is committed to full and open discussion of financial planning issues, and we encourage you to direct feedback or questions to FPA@FPAnet.org. We wish you the best for a happy and prosperous holiday season.

Sincerely,

James A. Barnash, CFP®

Statement by FPA President Elizabeth Jetton, CFP®, concerning

FPA Legal Challenge to SEC’s Broker-Dealer Rule

National Press Building, First Amendment Lounge

July 20, 2004

Good morning. My name is Elizabeth Jetton, and I am president of the Financial Planning Association and co-owner of a financial planning firm in Atlanta.

The Financial Planning Association today filed suit in federal appellate court challenging a proposed rule by the Securities and Exchange Commission that creates an expanded exemption for broker-dealers. The rule essentially allows broker-dealers to avoid the fiduciary and disclosure standards of the Investment Advisers Act of 1940 while acting as investment advisers and offering financial planning services. This suit comes after nearly five years of inaction by the SEC on a rule that dilutes consumer protection and related disclosure and ethical conduct standards for the financial planning profession.

I’m here to provide you with FPA’s perspective, and then a short briefing by our outside counsel, Merril Hirsh, detailing the legal particulars of the action taken today, with any questions that you may have to follow Merril’s presentation.

First, let me state for the record that I would much rather be speaking to you today about the positive aspects of financial planning than discussing a lawsuit. Going to court is not the way FPA or I personally would prefer to see things happen in the SEC rulemaking process. While we believe that the SEC needs to be taken to task on a faulty rule proposal, we would be remiss in not reaffirming our belief that the Commission overall should be commended for continuing to meet its investor protection mission during a period of great challenges and scrutiny of the agency. I also would note that FPA has worked closely in the past with SEC staff on numerous rule proposals, and expects to continue to work closely in the future with the Investment Management Division in particular, and the Commissioners on many other critical aspects of investment adviser regulation. 

Yet FPA is here today because it believes that the Commission has failed to grasp the implications of its actions, or perhaps inactions, in not attending to the serious problems created by this particular rule proposal. Of course, I am talking about the SEC’s formal rulemaking proposal called “Certain Broker-Dealers Deemed Not To Be Investment Advisers,” better known as the Broker-Dealer (B-D) Rule.   

We understand the good intentions of the SEC in wanting to align stockbrokers’ interest more closely with their customers through innovative programs. What we fail to understand is why the SEC would propose a rule that allows brokerage firms to misrepresent and actively market themselves to investors as trusted advisers – instead of disclosing their true role as sales agents -- under the B-D rule. The critical problem with the rule proposal is that it allows stockbrokers to call themselves financial planners and financial consultants, and to provide fee-based financial planning services under more lenient broker-dealer sales regulations. The rule permits broker-dealers to avoid the higher standards of a professional adviser, namely those of fiduciary investment advisers registered with the Commission or subject to the standards under which I also operate as a CFP® practitioner in a financial planning engagement. 

The standards of the Investment Advisers Act of 1940 and those of the CFP Board Code of Ethics and Professional Responsibility are very similar. Both require disclosure of conflicts of interest, the adviser’s qualifications, any disciplinary actions taken against him or her, and an obligation to place the clients’ interests above the adviser’s. The SEC failed to uphold these same standards for stockbrokers offering similar programs under the exemption.

By way of background, I happen to have a broker’s license to buy and sell stocks and mutual funds. I started my financial services career as a stockbroker. But I am now a financial planner. We, the real financial planners who comprise this profession, believe that the public has a right to know about the disciplinary history, conflicts of interest, and qualifications that are needed for a consumer to make an informed decision when hiring an adviser. We could take advantage of the lower standards proposed by the SEC. But we believe that real planners should adhere to appropriate standards for the profession and for anyone who professes to be a financial planner. The term “financial planning” has real meaning to us. As a financial planner, investment advice is a part of what we offer, but I do not think solely about stocks or mutual funds when working with my clients. 

FPA members indicate they overwhelmingly oppose the rule not only because it is anti-competitive, but because it is anti-consumer. Two-thirds of our members have broker-dealer affiliations and most of them share my views. Approximately 83 percent of all FPA members are supportive of litigation to help facilitate resolution of this issue, given the current impasse with the SEC. Support for litigation cuts equally across our diverse membership, including independent financial planners as well as those employed by large financial institutions.

What is truly mind boggling to me is that the SEC rule defies logic by suggesting the comprehensive financial planning that I offer to my clients is solely incidental to the services provided by a stock broker. The result is that the SEC is attempting to re-write the history of the Investment Advisers Act by ignoring the intent of Congress in determining the distinctions between stockbrokers and investment advisers.   Because we disagree on these very fundamental premises, and because the SEC has failed to act in a timely manner, we believe it necessary to seek redress in a court of law. 

If you look carefully at the securities industry’s comments to the SEC on this issue, including the comments in your media materials, you will see that the industry attempts to skew the interpretation of financial planning under the solely incidental exemption by characterizing financial planning as a back office analysis of a client’s needs. Once this analysis is completed, then presumably the back office financial plan is given to the broker who then makes the presentation to the brokerage customer. Nothing could be further from reality in what I do as a financial planner. And what I do as a professional planner is not incidental to selling stocks. As a CFP® practitioner, data collection and analysis of a client’s financial situation is only the second of six steps involved in the comprehensive financial planning process.  

I also would like to add that many other groups actively oppose the rule. Nearly 250 comments letters have been written to the SEC, and more than 95 percent are opposed. These consumer groups include the Consumer Federation of America, AARP, and Fund Democracy. I urge you to talk to others who are strongly opposed to this rule. I think you will find there is strong consensus by all of us on this issue. When you examine the overall effect of this rule on investors, I think you will realize that financial planners, investment advisers and consumers share a common concern – that the rule creates a double standard for the delivery of financial planning and investment advice to the American public. FPA’s goal is to have the SEC address a serious consumer protection problem, if not in the rulemaking process, then through an order of a court.     

I’ll be happy to take any questions following comments by Merril Hirsh.

Broker-Dealer Rule Fact Sheet

Current Law
Section 202(a)(11) of the Investment Advisers Act of 1940 defines investment advisers as persons who provide securities advice as a regular part of their business and receive compensation for such service.

Section 202(a)(11)(C) of the Investment Advisers Act excepts from the definition a broker or dealer whose advisory service is solely incidental to his business as a broker or dealer and who receives no special compensation for such service.

Chronology

• Spring 1940. Congress approves Investment Advisers Act of 1940; Act provides for limited industry exemptions, including brokerage firms that give advice in connection with stock sales.
• Summer 1999. Major wire houses meet with SEC regarding new fee-based “brokerage” programs and exemption from Investment Advisers Act of 1940.
• Nov. 4, 1999. SEC proposes additional exemption for brokerage firms in a no-action rule entitled “Certain Broker-Dealers Deemed Not to Be Investment Advisers.” SEC staff states it would not recommend enforcement action against broker-dealers complying with proposed rule.
• Jan. 14, 2000. SEC deadline for submitting comments on the rule.
• Dec. 20, 1999-July 10, 2004. SEC receives 248 comment letters regarding the proposed rule. Of this total, 96 percent are opposed; 1 percent opposed in part; 3 percent support the rule.
• July 20, 2004. Lawsuit filed in federal court by FPA challenging the rulemaking on technical grounds.
• Aug. 18, 2004. SEC reopens comment period on rule, citing FPA legal challenge.
• Aug. 27, 2004. D.C. Circuit Court of Appeals orders delay of lawsuit, following motion for delay by SEC, which promises final action on rule by Dec. 31st. Court orders reports by SEC every 45 days.
• Sept. 22, 2004. SEC deadline for submitting new comments; additional 1,500 letters received since lawsuit filed, overwhelming opposed.
• Dec. 22, 2004. SEC adopts temporary rule to extend broker exemption through April 15, 2005, proposes modified rule. Commissioners publicly pledge final rule adoption by deadline. Reopens comment period for third time.
• Feb. 7, 2005. SEC deadline for submitting comments on amended rule; receives another 300 letters for cumulative total of 2,000.
• Feb. 9, 2005. D.C. Circuit Court orders SEC and FPA to file new motions related to the lawsuit by April 29, or no more than 30 days after SEC adopts final rule, whichever comes first.
• March 29, 2005. SEC focus groups reject a draft Broker-Dealer Rule disclosure statement proposed by the SEC.
• April 6, 2005. SEC unanimously adopts the Broker-Dealer Rule (Investment Adviser/Broker-Dealer (IA/BD) Rule, IAA Rule 202(a)(11)-1).
• April 28, 2005. FPA files a petition in the United States Court of Appeals for the District of Columbia Circuit challenging the SEC’s final rule exempting certain broker-dealers from the requirements of the Investment Advisers Act of 1940. FPA also seeks, with the SEC’s consent, to file a motion consolidating the petition with FPA’s pending petition, filed on July 20, 2004, concerning the rulemaking proceeding.
• January 31, 2006. Implementation deadline of the Broker-Dealer Rule goes into effect: brokerage firms must transfer brokerage accounts to a sub-adviser or affiliated investment adviser in instances where the broker previously maintained discretion; was party to an advisory agreement; claimed to be a financial planner or offered financial planning services; or delivered a financial plan to a customer.
• March 23, 2006. FPA submits written brief to court citing that the SEC improperly created a new exemption for the brokerage industry that defies congressional intent and puts the investing public at risk when implementing the Broker-Dealer Rule.
• May 11, 2006. SEC responds to FPA’s brief.
• May 25, 2006. FPA responds to SEC.
• October 5, 2006. Oral arguments are held in FPA v. SEC in the U.S. Court of Appeals for the District of Columbia Circuit.
• March 15, 2007. FPA seeks regulatory guidance in understanding the differences between financial planning and fee-based brokerage services under a special exemption that broker-dealers have from the Investment Advisers Act of 1940.
• March 30, 2007. U.S. Court of Appeals for the District of Columbia Circuit rules in FPA’s favor in FPA v. SEC in a 2-to-1 decision.

Differences in the Treatment of Clients Under the Proposed Rule and the Advisers Act