Just when you thought the whole argument over the so-called Merrill Lynch exemption had been put to sleep, the argument arises, undead, to be (fiercely) debated yet another day. Amazingly, the Financial Planning Association's legal challenge against the SEC's exemption-which allowsing brokers to act a little like registered investment advisors (IARs) in some cases given certain parameters-was victorious.
Some advisors I know hadn't bothered to think about it much: Those FAs are already dually licensed (are acting as both a registered reps and registered investment advisors), so they don't have any problem legally offering comprehensive financial advice — or simply brokering the sale of a municipal bond.
And other reps I know hadn't much cared about the fracas. They were just keeping their heads down, doing business the way they've always done it. Well, they didn't care all that much until now. But now it's time to pay attention. That's because the FPA won. So, if you are a Series 7-holder and use fee-based brokerage accounts, you may be in for a big headache. You may have to transfer those accounts over to the registered investment advisory (RIA) unit of your broker/dealer (if the b/d has one), or break out the account-transfer forms to convert them into regular brokerage accounts. For an overview of what's at stake, please turn to page 31 for Senior Editor John Churchill's overview of the situation. (For all the gory details, try reading the small type on the cover of this issue. It's a list of just some of the things a b/d will have to do should the b/d exemption be permanently overturned. And thanks to W. Hardy Callcott, a lawyer with Bingham McCutchen in San Francisco, for help with that.)
In the Clients' Interest
But there's another legal issue that should grab your attention. Correcting your permanent record (Form U5) just got a little harder in March. A broker not only lost his bid to clean his U5 from what he says is an unfair blemish, he also gave registered reps — in New York State, in particular — a giant headache. An upstate Appeals Court ruled that brokerage management can put whatever it wants about your professional conduct on your U5, which it must file when you leave to go to another firm (or leave the business, for that matter). There is some evidence that some bitter branch managers over the years have put false statements of bad conduct on rainmakers' U5s to punish them for leaving. In New York State, you can have the untruth “expunged” from your record, but now you'll never win any monetary damages for successfully proving that you were defamed. This has big implications for reps everywhere. For more please turn to page 50 for Contributing Editor Karen Donovan's story.
We thank you for your support. Drop us a line with your comments at: 249 W. 17th St., New York, N.Y. 10011-5300. Or email us at [email protected]. Publisher Rich Santos can be reached at [email protected].