Wall Street to SEC: Financial Planning Simply a 'Know Your Customer' Tool

Thompson, Duane
November 2004
Journal of Financial Planning;Nov2004, Vol. 17 Issue 11, p26
Academic Journal
This article examines the consequences of the fee-based brokerage program proposed by the U.S. Securities and Exchange Commission (SEC) for financial planners, In 1999, SEC chairman Arthur Levitt was convinced that investors would be better off if their brokers charged fees instead of commissions. Levitt, eager to reduce one of the most chronic problems in the brokerage industry--churning--readily agrees and orders the rule put on the fast track. This proposal, however, presents a sticky legal problem. Fees for comprehensive investment advice over the past six decades were clearly associated with investment advisors, not stockbrokers. Charging a fee for advice would mean regulating brokers as advisors, accompanied by extensive affirmative disclosure requirements, and a clear fiduciary duty to their customers. To avoid complications, a SEC releases a new rule stating that fee-based investment advice be solely incidental to brokerage firms' full-service program, which ignores the statutory requirement that brokers receiving special compensation tied to investment advice be subject to advisor registration. More so, the Securities Industry Association argues that financial planning is not an advisory service. As such, the Financial Planning Association contests the rule as it renders financial planners on the short of the competition.


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