Subject: File No. S7-25-99
From: Al VanKampen
February 3, 2005
This proposed exception is based on the fallacy that major brokerage firms are rendering advisory services that are only incidental to the traditional brokerage business of buying and selling securities. Indeed, the SEC's proposal ignores the fact that almost all major brokerage firms are now providing retirement planning, pension planning, tax planning, estate planning, life insurance, and other nonbrokerage services; have actively promoted their "expertise" in broad-based financial planning; and have sought to set themselves apart from the limited, traditional stockbroker-customer relationship.
One example of this is that sales personnel at the following firms are given these designations:
Merrill Lynch: "Financial Consultant"
Morgan Stanley: "Financial Advisor"
Raymond James: "Financial Advisor"
American Express: "Financial Advisor"
UBS PaineWebber: "Financial Advisor"
Oppenheimer Funds: "Financial Advisor"
Smith Barney: "Financial Consultant"
Major brokerage firms bear little resemblance to the stock brokerages exempted from the Investment Advisers Act of 1940 by Congress, and as the nature of their business has changed, so too has the investment advice they provide to the public. Investment advice rendered by these firms is more akin to general financial planning, rather than incidental to "brokerage" activities. Because of the changed character of these firms, subjecting them to the Advisers Act does not offend the original congressional intent underlying the exception approved by Congress 65 years ago.
Tailoring an exception to allow these major financial institutions to render what are essentially investment advisory/financial planning services, and avoid compliance with the Advisers Act, is fundamentally inconsistent with the purposes of the Act and represents a failure in investor protection. It is extremely important that the Advisers Act fiduciary duty and disclosure rules apply to these firms.
The SEC has taken the position that the proposed exception will not cause harm to investors because investors dealing with brokerage firms are effectively protected by securities rules and regulations applicable to those firms, including the NASD suitability rule and the federal securities laws. However, in actual fact, these same brokerage firms uniformly assert before the courts and in arbitrations that these protections do not apply to their activities because their representatives merely purchase and sell securities. It is both illogical, and contrary to investor protection aims, for broker-dealers providing investment advice and financial planning to be permitted to avoid the same legal standards and training requirements applicable to other investment advisers.