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Banking Law Keyed to Barr, 3rd Ed.
Financial Planning Association v. Securities and Exchange Commission
Citation:
482 F.3d 481 (2007)Facts
The Investment Advisers Act of 1940 broadly defines “investment adviser” to include any person who, for compensation, advises others about securities investments. The Act contains specific exemptions, including one for broker-dealers whose investment advice is “solely incidental” to their brokerage business and who receive “no special compensation” for that advice. Historically, broker-dealers were compensated through commissions on transactions. In the 1990s, broker-dealers began offering fee-based accounts where customers paid either a fixed fee or a fee based on assets rather than per-transaction commissions. In 2005, the SEC adopted a final rule exempting these fee-based broker-dealers from the IAA, reasoning that their services were fundamentally similar to traditional commission-based brokerage. The SEC relied on its authority under Section 202(a)(11)(F) of the IAA, which allows it to exempt “such other persons not within the intent of this paragraph.” The Financial Planning Association, whose members include investment advisers subject to the IAA, challenged the rule, arguing that the SEC exceeded its statutory authority by exempting broker-dealers who receive “special compensation” when Congress had specifically limited the broker-dealer exemption to those receiving no special compensation.
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