Client Alert

Court Overturns SEC Rule Exempting Broker Dealers Offering Fee Based Brokerage Programs From Regulation Under Investment Advisers Act

April 09, 2007

The Investment Management Practice Group

In yet another setback for the Securities and Exchange Commission and its rulemaking authority, the D.C. Circuit Court of Appeals has vacated the SEC's adoption of Rule 202(a)(11)-1 under the Investment Advisers Act of 1940. This marks the third instance in the last two years where the D.C. Circuit has overturned a rule enacted by the SEC.

The ruling creates a great deal of uncertainty for the fee-based brokerage business, which has grown substantially over the past eight years, partly in reliance on SEC pronouncements that such programs could be offered outside the scope of the Act. Unless the Court's decision is overturned by further judicial action or by legislative efforts, fee-based brokers will need to consider restructuring their programs to ensure that they remain outside the reach of the Act or accept regulation under the Act with all of its associated ramifications.

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Investment Management

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