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U.S. Securities and Exchange Commission

Speech by SEC Commissioner:
Remarks before the Open Meeting to Consider Certain Broker-Dealers Deemed Not to be Investment Advisers


Paul S. Atkins

U.S. Securities and Exchange Commission

Washington, D.C.
December 22, 2004

We are confronted today by the ghost of past Commission action and inaction. Five years ago, we proposed a rule that would allow broker-dealers to charge account-based fees rather than commissions without requiring them to register as investment advisers. Our action came in response to valid concerns that drawing lines based upon how a broker gets paid is no longer an effective approach to determining whether broker-dealers are acting as investment advisers. The proposing release stated that, pending final action on the proposal, the staff would not recommend Commission action against a broker-dealer who failed to treat, fee-based, non-discretionary accounts as advisory accounts. Over the past five years many broker-dealers have relied on this so-called staff "no-action" position.

The Commission has allowed the years to wile away without taking action on the 1999 proposal. Only litigation has awoken us and forced us to act in August to repropose the rule. The Commission is finally stepping forward and addressing this issue, albeit belatedly. We are adopting a temporary rule that permits broker-dealers, regardless of the type of compensation they receive, to retain their exemption from the Advisers Act if they provide advice incidental to their brokerage services.

I also support publishing for another round of comment a proposed rule, which gives interested parties an additional opportunity to provide comment on the contours of the rule before it takes final form. These comments will assist us to try to draw clear lines between activity that should be regulated under the Advisers Act and activity that does not need to be. Given the numerous iterations of the release that have been distributed to the Commissioners over the past several weeks, I am sure that none of us will be wholly satisfied with the end product.

Once we have received comments, I look forward to quick Commission action on this rulemaking. I hope that this matter does not move once again to the back-burner in favor of other less-pressing rulemaking efforts as happened in the autumn, when staff resources were diverted from this very issue. I also expect that different parts of the staff will co-operate and work together in this endeavor under the Chairman's leadership.

Finally, in adopting the rule, we have to remember that business is a dynamic enterprise and just as things have changed dramatically since 1940, they most certainly will evolve over the next years, despite (or because of) our line-drawing.


Modified: 12/22/2004