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News June 28, 2004 Issue

Planners Try, Try Again

The Financial Planning Association has made another run at the fee-based brokerage rule.

In a June 21 comment letter, the group urged the SEC to withdraw the proposal, and its embedded no-action position, once and for all. The SEC’s “de facto adoption” of the rule, said the FPA, “constitutes a violation of the letter and intent” of the Administrative Procedures Act (APA). That seems to be the first time the FPA has raised the APA argument against the rule. The group also questioned whether the SEC exceeded its authority in creating the new class of fee-based broker-dealers.

Given the current political environment and heightened regulatory sensitivity to conflicts of interest, it will be interesting to watch the SEC’s response, if any.

And don’t rule out an FPA lawsuit. In an April 2004 survey of its members, the group asked whether it should, either as lead plaintiff or as part of a group, sue the SEC over the proposal “based on misinterpretation of the Advisers Act and related legal issues involved in the rulemaking process.” Over 83 percent of FPA members supported the lawsuit approach (as opposed to dropping the group’s opposition to the fee-based brokerage rule or supporting a compromise rule).

In December 2002, Fund Democracy founder Mercer Bullard met with SEC Commissioner Harvey Goldschmid and warned that Fund Democracy “would make efforts to challenge the rule proposal in court.” To date, no Fund Democracy suit has been filed.