Broker/Dealer Exemption Rule Vacated

May 11, 2007

In a 2-1 decision issued at the end of March, the U.S. Court of Appeals for the District of Columbia Circuit threw out what is commonly referred to as the Merrill Lynch Rule, formally known as Rule 202(a)(11)-1 of the Investment Advisers Act of 1940. Under this rule, the SEC exempted certain broker-dealers from investment advisor registration even if the broker-dealers provide what many contend to be advisory services and charge a fee for such services. From its inception, the Financial Planning Association fought the rule and ultimately received a successful outcome with last week’s ruling. In the ruling, Judge Judith Rogers and Judge Brett Kavanaugh noted that the SEC exceeded its authority by exempting brokerage firms that charge asset-based fees from registration under the Advisers Act.

While RIA Compliance Consultants, Inc. agrees with the ruling, we do not think this will have much of an effect on our current clients, who are already registered as investment advisors. This ruling will affect broker-dealers that have been relying on the rule to avoid investment advisor registration. It should be noted that the rule remains in effect until the D.C. court’s decision is final, which should occur on May 21, 2007, unless the SEC requests a rehearing. If your firm is interested to learn about the steps necessary to become registered as an investment advisor, please contact us and ask for Jarrod James, Senior Compliance Consultant. RCC offers a comprehensive turnkey approach to investment advisor registration at competitive prices. We also invite you to check out the Registration Services and FAQ – IA Registration pages of our website.

Posted by Bryan Hill
Labels: How to Become RIA, Investment Advisor Registration, Registration, SEC