Over the vociferous objections of fee-only financial planners, the SEC voted unanimously today to adopt the broker/dealer exemption rule.

The rule, formerly known as the Merrill Lynch exemption, lets b/ds that offer fee-based brokerage accounts avoid the fiduciary obligations required of advisors under the Investment Advisers Act of 1940.

On the most basic level, the ruling allows a wide variety of retail financial jobs to be legally described by the term “advisor.” Formerly, only financial professionals held to specific fiduciary standards under the 1940 Act could use the term legitimately.

The ruling ends a bitter six-year battle between the financial planning community and stockbrokers.

“Today’s action is a victory for investors,” said Marc Lackritz, president of the Securities Industry Association, in a statement to the press. “Placing broker/dealers that offer fee-based brokerage accounts to their clients under an additional, and wholly unnecessary, layer of regulation could have severely limited the availability of these popular accounts,” said Lackritz.

Approximately $280 billion in client assets currently reside in fee-based accounts, according to the SIA.

Though the ruling on this matter is a final one, the SEC’s opinion on it seems far from settled. SEC Chairman William Donaldson said the commission has determined, through several hundred comment letters and its own focus group studies, that “many questions remain about whether there are material differences in the levels of protection afforded retail customers of financial service providers” under the Securities Exchange and Investment Advisers Acts. Indeed, SEC public focus groups found significant confusion among investors about the differences between the two professions.

Donaldson has called for the creation of a new SEC focus group to study whether the term advisor should be so broadly applied. The creation of that focus group (which is charged with making recommendations for a study of the matter within 90 days) is puzzling to some.

“If the SEC was serious about addressing fiduciary duty, they would have extended the 90-day temporary rule while the study group examines these things,” says Ron Rhoades of Joseph Capital Management in Hernando, Fla., a vocal critic of the rule. “Now that it’s adopted, what happens with the study?”

Rhoades says revisiting the Securities Exchange Act and the Investment Advisers Act of 1940, the laws that govern brokers and advisors respectively, is a good idea. But he notes that any real change would probably be years in the making.

“It’s a good idea to look at the two regulatory regimes, but for Congress to change statutes would take many years,” Rhoades says.

The Financial Planning Association, the lead critic of the five-year inaction on the issue after the SEC first adopted the Merrill exemption in 1999, is pleased with the enhanced disclosure of requirements of the new rule, but is otherwise disheartened.

“The approach taken by this rule will be a disservice to the public over the long term if it only formalizes two different kinds of regulation for the same advisory service,” read an official FPA reaction to the rule adoption.

Under the new disclosure rules, financial professionals must advise clients that brokerage accounts are not advisory accounts and that firms’ interests may not always be aligned with the clients’. Firms must also make someone available to clients to discuss the differences between an investment advisor and a broker.

The FPA still has a lawsuit pending against the SEC. It filed the suit in July 2004 to prod the commission to make a permanent decision on the Merrill exemption, and the FPA says it plans to carefully review the new rule before deciding how to proceed.