The SEC adopted a temporary rule (206(3)-3T) allowing registered investment advisers who are also broker-dealers to conduct principal trades with non-discret…
raw: Press Release: SEC Votes to Adopt Temporary Rule on Principal Trades With Certain Advisory Clients; Also Votes to Propose Rule Amendments Regarding Interpretive Rules Under the Advisers Act Affecting Broker-Dealers
summary
The SEC adopted a temporary rule (206(3)-3T) allowing registered investment advisers who are also broker-dealers to conduct principal trades with non-discretionary clients after a court ruling disrupted fee-based account structures, requiring enhanced disclosures and consent but imposing no fraud charges, as this was a regulatory response to legal uncertainty, not misconduct.
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The SEC adopted temporary Rule 206(3)-3T to permit dually registered investment advisers to engage in principal trades with non-discretionary advisory clients without violating Section 206(3) of the Advisers Act, following the D.C. Circuit’s decision in Financial Planning Association v. SEC. The rule mandates written prospective disclosure of conflicts, revocable client consent, transaction-level notifications, confirmation statements, and annual reporting of principal trades, while explicitly preserving fiduciary duties including best execution and full conflict disclosure. It applies only to accounts subject to the Exchange Act and expires on December 31, 2009, alongside proposed rule amendments to reinstate interpretive guidance on when broker-dealer advice is 'solely incidental' or constitutes 'special compensation.'
narrative
The SEC adopted temporary Rule 206(3)-3T on an interim-final basis in response to the D.C. Circuit Court’s ruling in Financial Planning Association v. SEC, which invalidated prior interpretations of the Advisers Act and threatened to disrupt fee-based brokerage accounts. The rule permits registered investment advisers who are also broker-dealers to execute principal trades with non-discretionary advisory clients provided they meet strict conditions: written disclosure of conflicts, prospective written client consent, oral or written transaction-specific approvals, confirmations disclosing the adviser’s capacity, and annual reporting of all such transactions. Importantly, the rule does not relieve advisers of their fiduciary obligations under the Advisers Act, including the duties to seek best execution and disclose all material conflicts of interest. The rule applies exclusively to accounts regulated under the Exchange Act and is set to expire on December 31, 2009, with the SEC inviting public comment before then. Simultaneously, the SEC proposed amendments to reinstate three interpretive provisions vacated by the court, clarifying that broker-dealers are subject to the Advisers Act when they charge separate fees for advisory services, exercise investment discretion, or receive special compensation—not merely because they offer discounted commissions. The proposed amendments also reaffirmed that dual registrants are considered investment advisers only with respect to accounts where advisory services trigger Advisers Act coverage. This regulatory action was purely corrective, aimed at restoring market stability and legal clarity, with no allegations of fraud, misconduct, or enforcement actions against any firm or individual.
Classified unclassified. No EDGAR filing fingerprint (criminal/DOJ-side scheme). detection rule →
Parties
discretionary asset managementSecurities and Exchange Commissionthe securities and exchange commission
Keywords
adviserstemporaryprincipalamendmentsbrokeragesecadvisoryprincipal tradescertain advisoryadvisory clientspropose amendmentsproposed amendmentsinvestmentadviservotes
Extracted insights
Entities 3
- person discretionary asset management
- agency Securities and Exchange Commission
- agency the securities and exchange commission
Triples 16
- Sec Votes to Adopt Temporary Rule on Principal Trades With Certain Advisory Clients
- Sec Votes to Propose Rule Amendments Regarding Interpretive Rules Under the Advisers Act Affecting Broker-Dealers
- The Securities and Exchange Commission Voted to adopt, on an interim-final basis, a temporary rule
- The temporary rule is being adopted on an interim final basis in response to the decision by the U.S. Court of Appeals for the District of Columbia Circuit in Financial Planning Association v. Sec
- The Court's decision takes effect as early as October 1
- The temporary rule is designed to enable investors to continue to have access to many of the securities held by the firms providing advisory accounts
- Compliance with the temporary rule will not relieve an investment adviser from its fiduciary obligations imposed by the Advisers Act or by other applicable provisions of federal law
- Temporary Rule 206(3)-3T permits an adviser with respect to a non-discretionary advisory account, to comply with Section 206(3) of the Advisers Act
- The rule requires that the investment adviser be registered as a broker-dealer under Section 15 of the Exchange Act
- The temporary rule will expire and no longer be effective on Dec. 31, 2009
- The Commission invites comments on all aspects of the temporary rule
- The Commission should receive comments by Nov. 30, 2007
- The Commission voted to propose rule amendments that would reinstate three interpretive provisions of a rule that was vacated by the Court of Appeals for the District of Columbia Circuit in Financial Planning Association v. Sec
- The proposed rule amendments would re-codify guidance as to when advice is 'solely incidental' to the conduct of business as a broker-dealer within the meaning of Section 202(a)(11)(C) of the Advisers Act
- Separate Fee or Contract When a broker-dealer charges a separate fee or separately contracts for advisory services, its advice would not be considered 'solely incidental' to the business of brokerage
- Discretionary Asset Management When a broker-dealer exercises investment discretion it would not be considered to be providing advice that is 'solely incidental' to the business of brokerage
Extracted body text (5,114c)
SEC Votes to Adopt Temporary Rule on Principal Trades With Certain Advisory Clients; Also Votes to Propose Rule Amendments Regarding Interpretive Rules Under the Advisers Act Affecting Broker-Dealers FOR IMMEDIATE RELEASE 2007-193 Washington, D.C., Sept. 20, 2007 - The Securities and Exchange Commission yesterday voted to adopt, on an interim-final basis, a temporary rule that will establish an alternative means for investment advisers who are registered as broker-dealers to meet the requirements of Section 206(3) of the Advisers Act when they act in a principal capacity in transactions with certain of their advisory clients. The temporary rule is being adopted on an interim final basis in response to the decision by the U.S. Court of Appeals for the District of Columbia Circuit in Financial Planning Association v. SEC. As a result of the Court's decision, which takes effect as early as October 1, fee-based brokerage customers must decide whether they will convert their accounts to fee-based accounts that are subject to the Advisers Act or to commission-based brokerage accounts. The temporary rule is designed to enable investors to continue to have access to many of the securities held by the firms providing advisory accounts. Compliance with the temporary rule will not relieve an investment adviser from its fiduciary obligations imposed by the Advisers Act or by other applicable provisions of federal law. These obligations include fulfilling the duty to seek best execution of client transactions, as well as the duty to disclose material facts necessary to alert clients to the adviser's potential conflicts of interest. Temporary Rule 206(3)-3T permits an adviser, with respect to a non-discretionary advisory account, to comply with Section 206(3) of the Advisers Act by, among other things, (i) providing written prospective disclosure regarding the conflicts arising from principal trades; (ii) obtaining written, revocable consent from the client prospectively authorizing the adviser to enter into principal transactions; (iii) making certain disclosures either orally or in writing and obtaining the client's consent before each principal transaction; (iv) sending to the client confirmation statements disclosing the capacity in which the adviser has acted and disclosing that the adviser informed the client that it may act in a principal capacity and that the client authorized the transaction; and (v) delivering to the client an annual report itemizing the principal transactions. The rule also requires that the investment adviser be registered as a broker-dealer under Section 15 of the Exchange Act and that each account for which the adviser relies on this rule be a brokerage account subject to the Exchange Act, and the rules thereunder, and the rules of the self-regulatory organization(s) of which it is a member. The temporary rule will expire and no longer be effective on Dec. 31, 2009. The Commission invites comments on all aspects of the temporary rule. The Commission should receive comments by Nov. 30, 2007. The Commission also voted to propose rule amendments that would reinstate three interpretive provisions of a rule that was vacated by the Court of Appeals for the District of Columbia Circuit in Financial Planning Association v. SEC. Those interpretations relate to the application of the Advisers Act to certain activities of broker-dealers. The proposed rule amendments would re-codify guidance as to when advice is "solely incidental" to the conduct of business as a broker-dealer within the meaning of Section 202(a)(11)(C) of the Advisers Act. Separate Fee or Contract. When a broker-dealer charges a separate fee or separately contracts for advisory services, its advice would not be considered "solely incidental" to the business of brokerage. Discretionary Asset Management. When a broker-dealer exercises investment discretion it would not be considered to be providing advice that is "solely incidental" to the business of brokerage. The proposed rule amendments would also re-codify guidance as to when a broker-dealer receives "special compensation" for providing investment advice within the meaning of Section 202(a)(11)(C) of the Advisers Act. Discount Brokerage. Under the proposal, a broker-dealer does not receive "special compensation" solely because it charges a commission for discount brokerage that is less than it charges for full-service brokerage. Finally, the proposed rule amendments would re-codify an interpretation that dually-registered broker-dealers and investment advisers are considered investment advisers solely with respect to those accounts for which they provide services that subject them to the Advisers Act. Comments on these proposed amendments should be received by the Commission by Nov. 2, 2007. * * * The full text of detailed releases concerning these items will be posted to the SEC Web site as soon as possible. Additional materials: Video of Chairman's Statement: Windows Media Player (8 MB) QuickTime (8 MB) http://www.sec.gov/news/press/2007/2007-193.htm Home | Previous Page Modified: 09/20/2007
OCR text (5,114c · plain-text · 99% conf)
SEC Votes to Adopt Temporary Rule on Principal Trades With Certain Advisory Clients; Also Votes to Propose Rule Amendments Regarding Interpretive Rules Under the Advisers Act Affecting Broker-Dealers FOR IMMEDIATE RELEASE 2007-193 Washington, D.C., Sept. 20, 2007 - The Securities and Exchange Commission yesterday voted to adopt, on an interim-final basis, a temporary rule that will establish an alternative means for investment advisers who are registered as broker-dealers to meet the requirements of Section 206(3) of the Advisers Act when they act in a principal capacity in transactions with certain of their advisory clients. The temporary rule is being adopted on an interim final basis in response to the decision by the U.S. Court of Appeals for the District of Columbia Circuit in Financial Planning Association v. SEC. As a result of the Court's decision, which takes effect as early as October 1, fee-based brokerage customers must decide whether they will convert their accounts to fee-based accounts that are subject to the Advisers Act or to commission-based brokerage accounts. The temporary rule is designed to enable investors to continue to have access to many of the securities held by the firms providing advisory accounts. Compliance with the temporary rule will not relieve an investment adviser from its fiduciary obligations imposed by the Advisers Act or by other applicable provisions of federal law. These obligations include fulfilling the duty to seek best execution of client transactions, as well as the duty to disclose material facts necessary to alert clients to the adviser's potential conflicts of interest. Temporary Rule 206(3)-3T permits an adviser, with respect to a non-discretionary advisory account, to comply with Section 206(3) of the Advisers Act by, among other things, (i) providing written prospective disclosure regarding the conflicts arising from principal trades; (ii) obtaining written, revocable consent from the client prospectively authorizing the adviser to enter into principal transactions; (iii) making certain disclosures either orally or in writing and obtaining the client's consent before each principal transaction; (iv) sending to the client confirmation statements disclosing the capacity in which the adviser has acted and disclosing that the adviser informed the client that it may act in a principal capacity and that the client authorized the transaction; and (v) delivering to the client an annual report itemizing the principal transactions. The rule also requires that the investment adviser be registered as a broker-dealer under Section 15 of the Exchange Act and that each account for which the adviser relies on this rule be a brokerage account subject to the Exchange Act, and the rules thereunder, and the rules of the self-regulatory organization(s) of which it is a member. The temporary rule will expire and no longer be effective on Dec. 31, 2009. The Commission invites comments on all aspects of the temporary rule. The Commission should receive comments by Nov. 30, 2007. The Commission also voted to propose rule amendments that would reinstate three interpretive provisions of a rule that was vacated by the Court of Appeals for the District of Columbia Circuit in Financial Planning Association v. SEC. Those interpretations relate to the application of the Advisers Act to certain activities of broker-dealers. The proposed rule amendments would re-codify guidance as to when advice is "solely incidental" to the conduct of business as a broker-dealer within the meaning of Section 202(a)(11)(C) of the Advisers Act. Separate Fee or Contract. When a broker-dealer charges a separate fee or separately contracts for advisory services, its advice would not be considered "solely incidental" to the business of brokerage. Discretionary Asset Management. When a broker-dealer exercises investment discretion it would not be considered to be providing advice that is "solely incidental" to the business of brokerage. The proposed rule amendments would also re-codify guidance as to when a broker-dealer receives "special compensation" for providing investment advice within the meaning of Section 202(a)(11)(C) of the Advisers Act. Discount Brokerage. Under the proposal, a broker-dealer does not receive "special compensation" solely because it charges a commission for discount brokerage that is less than it charges for full-service brokerage. Finally, the proposed rule amendments would re-codify an interpretation that dually-registered broker-dealers and investment advisers are considered investment advisers solely with respect to those accounts for which they provide services that subject them to the Advisers Act. Comments on these proposed amendments should be received by the Commission by Nov. 2, 2007. * * * The full text of detailed releases concerning these items will be posted to the SEC Web site as soon as possible. Additional materials: Video of Chairman's Statement: Windows Media Player (8 MB) QuickTime (8 MB) http://www.sec.gov/news/press/2007/2007-193.htm Home | Previous Page Modified: 09/20/2007