Battle lines drawn on appeal of broker ruling

NEW YORK — As the May 14 deadline looms for the Securities and Exchange Commission to appeal the overturning of the broker-dealer exemption rule, supporters and opponents of the rule have been busy making their case in the court of public opinion.
The Zero Alpha Group, a Washington-based network of independent advisers, held a press conference late last month applauding the March 30 decision by the U.S. Court of Appeals for the District of Columbia Circuit that overturned the SEC’s rule.
The adviser group urged the SEC not to appeal the court’s decision and unveiled a national public opinion survey showing public support for its anti-exemption position.
Meanwhile, Wall Street’s largest trade group has been pushing hard for the SEC to appeal the court’s ruling.
Marc Lackritz, president and chief executive of the New York- and Washington-based Securities Industry and Financial Markets Association, led the charge last month by asserting that overturning the exemption rule, which exempted brokerage firms that charge asset-based fees from investment advisory regulations, would “significantly reduce” investors’ options “for receiving and paying for financial services.”
“We strongly urge the SEC to ask for a rehearing,” he said.
And at the trade group’s recent annual independent broker-dealer conference in Baltimore, Ira Hammerman, SIFMA senior managing director and general counsel, reiterated the association’s position.
Fee-based brokerage accounts should remain a choice for the approximately one million investors who have them, Mr. Lackritz said.
But according to a survey by Princeton, N.J.-based Opinion Research Corp. released by the Zero Alpha Group and the Consumer Federation of America, just 29% of investors surveyed correctly identified the “primary” service of brokers as buying and selling financial products, not providing investment advice.

Same rules
What’s more, according to the survey, 54% of investors said they looked to stockbrokers for more than transactional assistance. And 92% said they thought that the same rules should apply to both brokers and financial planners when both groups offer the same kind of investment advice services.
Those findings, argued Barbara Roper, Pueblo, Colo.-based director of investment protection for the Washington-based CFA, demonstrated “investor support” for overturning the existing broker-dealer exemption rule.
“As the SEC confronts these issues, it must acknowledge that disclosure alone is not an answer,” she said.
Executives at advisory firms also used the survey findings to make their case for allowing the appeals court decision to prevail.
“The public clearly wants an even-handed approach to regulation of stockbrokers and investment advisers who are doing the same thing,” said Steve Lugar, managing director of Dallas-based BHCO Capital Management Inc. “If stockbrokers want to do business like investment advisers, the SEC should impose on them the rules that go along with being an investment adviser.”
BHCO manages more than $270 million in assets.
Gregory Carlson, founding principal of Carlson Capital Management Inc. of Northfield, Minn., which manages $765 million in assets, called the survey findings “a strong and direct challenge to the wisdom of any appeal by the SEC.”
The Zero Alpha-CFA survey was conducted in mid-April among a sample of more than 2,000 adults ages 18 and over. The majority of the questions, according to the CFA, “were asked only of the 1,073 adults who described themselves as investors.”