U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission

Speech by SEC Commissioner:
Remarks before the Open Meeting: Certain Broker-Dealers Deemed Not To Be Investment Advisers


Cynthia A. Glassman

U.S. Securities and Exchange Commission

Washington, D.C.
December 22, 2004

The purpose of this rule proposal is to differentiate between when an account is a brokerage account and when it is an advisory account and help investors understand when an account is a brokerage account and when it is an investment advisory account and what that means. While that sounds simple, it's not. Describing the distinctions between the two types of accounts and what that means to an individual investor depends to a great extent based on the facts and circumstances surrounding the investor's relationship with the financial services provider. Therefore, it's not surprising that investors are confused about these basic concepts.

Given the apparent widespread confusion among investors about the obligations broker-dealers owe their clients and how those obligations differ from the obligations investment advisers owe their clients, there are two aspects of the proposal that are most important to me. The first aspect is moving towards more clarity on when advice is "solely incidental to" brokerage services and what activities are more than solely incidental to and therefore trigger the protections of the Investment Advisers Act. The second is the part that seeks to ensure that investors understand the implications of obtaining advice from a broker-dealer as opposed to an investment adviser.

Therefore, I am extremely disappointed and displeased that we are not in a position today to resolve these issues and begin to clear up some of that confusion. I recognize, however, that, in the end, the rule we ultimately adopt and the content we ultimately give to such concepts as "solely incidental to" the brokerage business and "financial planning" will have benefited from additional public comment. For example, I think the proposed treatment of all discretionary brokerage accounts as advisory accounts seems appropriate and I would like comment on this and any additional types of accounts or services that should be considered more than "solely incidental" to.

Focusing again on investor confusion, I particularly want to encourage comment on whether the proposed requirements for disclosure should be applied to all brokerage accounts, not just fee-based non-discretionary accounts. In my view, the purpose of the disclosure should not be to suggest that one regulatory regime is better or more comprehensive than another. It should simply be to encourage investors to discuss with their broker the nature of their relationship and to be clear about their broker's obligations to them. I want to know if our proposed disclosure accomplishes this goal or whether commenters have better suggestions. I intend to ask our Office of Investor Education and Assistance to conduct investor outreach on this point as well.

Given the importance of the issues addressed by this rulemaking, it is extremely important to me that the staff continue to treat this rulemaking as a priority so that the Commission can meet its self-imposed April 15th deadline so that the Commission can bring this matter to a conclusion that will benefit investors at the same time that it strikes an appropriate regulatory balance. If we do not meet our deadline, we will merely be ratifying the status quo which, in my view, is an unacceptable outcome. The temporary rule expires April 15th and all relevant divisions must cooperate to meet that deadline. I cannot foresee any circumstance under which I would be willing to extend that self-imposed deadline.


Modified: 01/04/2005