Investment Management: Court Rules In Favor Of Registered Investment Advisors

Last week, the U.S. Court of Appeals overturned a long-standing special exemption for brokers known as the “Merrill Rule,” which allowed broker-dealers from offering fee-based accounts without being registered as Investment Advisors.

The court found that the SEC had exceeded its authority by allowing such practice. At this point, the SEC announced that it will not fight the decision.

The lawsuit was brought by the Financial Planner’s Association (FPA), and it agued that “whereas commissioned brokers are only responsible for making sure that trading and related transactions are handled properly, advisers by law must make investment decisions based on what’s in the best long-term financial interests of their clients.”

This is a point I have repeatedly touched on over the years. Broker-dealers, or their sales people, do not necessarily have the client’s best interest in mind when they peddle preferred company products based on incentives.

I for one applaud the U.S. Court of Appeals for fighting the SEC on this one. The outcome has the potential to benefit all investors by making them aware of the differences in compensation and subsequently the bias of the advice.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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