SEC Extends Certain Provisions of Broker-Dealer Exemption Rule

September 28, 2005

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Earlier this month, the SEC announced that it is extending the compliance date for certain provisions under the Certain Broker-Dealers Deemed Not to be Investment Advisers rule. Under the controversial rule, the SEC is allowing broker-dealers to continue to provide fee-based brokerage accounts without registering as an advisor. However, the SEC did rule that broker-dealers cannot use discretion in the management of fee-based accounts. In addition, financial planning services are no longer considered solely incidental to providing brokerage services. In other words, if you are a broker-dealer or registered representative of a broker-dealer and manage accounts on a discretionary basis; hold yourself out as a financial planner or as providing financial planning services; deliver financial plans to clients or represent financial planning services in any way; you need to cease such activity by January 31, 2006, or register as an advisor. Originally, broker-dealers had to be in compliance with these provisions by October 24, 2005.

The change in compliance dates was made at the request of several industry trade organizations. By extending the compliance dates, the SEC is allowing an additional three months for broker-dealers and registered representatives of broker-dealers to register as investment advisors and investment advisor representatives. Broker-dealers that intend to continue providing discretionary and/or financial planning services will need to complete and file the Form ADV, establish written compliance procedures, register with either the SEC or state regulators, and come into full compliance with the advisor rules and regulations. All of these steps must be taken by January 31, 2006.

Posted by Bryan Hill
Labels: SEC