Securities: Ruling Will Clarify Adviser's Duty to Client

A recent ruling by the U.S. Court of Appeals has eliminated a Securities and Exchange Commission regulation, known as the Merrill rule, which exempted brokers from registering as investment advisoers as long as fee-based financial advice is "solely incidental to brokerage services on a customer's account." Under this rule, brokerage houses gained the ability to call themselves financial planners.

Ruling Should Help Clarify Adviser's Duty to Client

Several consumer groups and the Financial Planning Association sued the SEC in 2004, saying that the rule gave brokers an illegal loophole to offer the same advisory services as registered investment advisers without requiring that securities representatives follow high legal client-protection standards. Mercer Bullard, a securities law professor at the University of Mississippi, said that the rule was unfair because "this has the effect of pushing $250 billion of broker assets into noncompliance with the Investment Advisers Act, unless they move very quickly to toe the new regulatory line."