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SEC Proposes to Exclude Certain Broker-Dealers from the Advisers Act
Washington, DC, November 8, 1999 - The U.S. Securities and Exchange Commission (SEC) has published for comment a proposed new rule under the Investment Advisers Act of 1940, Rule 202(a)(11)-1, that would exclude certain broker-dealers from regulation as investment advisers. The proposed rule is designed to clarify the applicability of the Advisers Act to broker-dealers who charge their customers a fee that is either a fixed-dollar amount or based on a percentage of assets held on account with the broker-dealer. Comments on the proposal are due to the SEC on or before January 14, 2000.
Under the proposed rule, a broker-dealer providing investment advice to customers, regardless of the form of its compensation, would be excluded from the definition of investment adviser as long as:
- the advice is provided on a non-discretionary basis;
- the advice is solely incidental to the brokerage services; and
- the broker-dealer discloses to its customers that their accounts are brokerage accounts.
In addition, the proposed rule would keep a broker-dealer providing advice to customers from being subject to the Advisers Act solely because it also offers execution-only brokerage services at reduced commission rates.
The proposed rule also would clarify that broker-dealers that are subject to the Advisers Act are subject to the Act only with respect to their advisory clients. So, for example, the brochure required under the Advisers Act need only be delivered to the broker-dealer's advisory clients.
The SEC has also proposed to amend the instructions to Form ADV to clarify how broker-dealers subject to the Advisers Act should calculate the aggregate assets under management of their advisory clients for determining whether they meet the $25 million threshold to be eligible for registration as an investment adviser with the SEC rather than with the states.