Now that the Financial Planning Association’s victory over fee-based brokerage accounts is cemented, some in the securities industry are wondering whether the group will take aim at other brokerage transactions that hinge upon a registered representative giving clients advice.
NEW YORK — Now that the Financial Planning Association’s victory over fee-based brokerage accounts is cemented, some in the securities industry are wondering whether the group will take aim at other brokerage transactions that hinge upon a registered representative giving clients advice.
For example, in recent discussions among independent-
contractor broker-dealer executives led by their trade association, the Financial Services Institute Inc. of Atlanta, some executives expressed concern that certain types of portfolio modeling software that reps use to purchase mutual funds for clients would draw the attention of either the FPA or securities regulators.
In teleconferences and meetings this month and last, some executives were fearful that the use of portfolio modeling software that firms provide for reps could be interpreted as an offering of investment advisory services, although reps charge a commission and not a fee for such transactions.
And that could give the Denver-based FPA another target, executives said.
“I hope that every rep who makes a mutual fund recommendation does not have to have a Series 65 [license] or be a card-carrying member of the FPA,” said Jeff Auld, president of Berthel Fisher & Company Financial Services Inc. of Marion, Iowa.
What’s next?
To sell mutual funds, reps must pass at least a Series 6 exam with NASD of Washington. Investment advisers must pass a Series 65 exam.
With the Securities and Exchange Commission throwing in the towel last week over the broker-dealer exemption, Mr. Auld characterized the industry’s reaction as wondering what the “unintended consequences” could be.
“It’s not nervousness but annoyance,” he said. “What will we have to deal with next?”
Duane Thompson, managing director of the FPA’s Washington office, said he had no comment when asked about further legal action it might take. He also could not comment about specific examples of services that brokerage executives might raise. However, Mr. Thompson stressed that the same standards should apply across the industry.
“Whatever services financial planners and registered investment advisers provide, there should be a level playing field,” he said.
One brokerage executive said that the notion of a level playing field for advisers, who are registered with the SEC and the states, and broker-dealer reps, who are registered with NASD, is misguided.
“How do you separate out financial planning from investment?” asked Eric Schwartz, chief executive of Cambridge Investment Research Inc. of Fairfield, Iowa. “It’s one big soup.”
“It’s not a level playing field. Reps leave the broker-dealer world and go to that world because compliance is easier,” Mr. Schwartz said. For example, he noted that NASD’s approval process for ads by individual reps was much more rigorous than the standards advisers had to meet.
Broker-dealers looked at the specific software reps were using when the broker-dealer exemption first was adopted, said David Bellaire, general counsel of the FSI.
“Broker-dealers spent a lot of energy looking at this. Now, what do you do?”
No guidance
Last week, the SEC did not give any immediate guidance to broker-dealers concerning side issues, such as using software to choose mutual funds for clients.
However, in a statement last Monday, the SEC said that it will “consider whether further rulemaking or interpretations are necessary regarding the application of the [Investment] Advisers Act [of 1940] to [fee-based brokerage] accounts and the issues resulting from the court’s decision.”
