In a companion release to proposed Rule 202(a)(11)-1, the Securities and Exchange Commission adopted Rule 206(3)-3T (Interim Rule) to allow temporarily an alternate means of complying with Section 206(3) of the Investment Advisers Act of 1940 for firms dually registered as investment advisers and broker-dealers when acting in a principal capacity with advisory clients. The March 2007 decision in Financial Planning Association v. SEC (FPA), among other things, caused fee-based brokerage customers to decide whether they will convert their accounts to fee-based accounts subject to the Advisers Act or to commission-based brokerage accounts. The Interim Rule is the SEC’s partial response to the FPA decision and enables investors to have access to many of the securities held by brokerage firms providing advisory accounts.
The Interim Rule is in effect from September 30, 2007 to December 31, 2009 and permits dually registered firms to engage in principal securities transactions with the brokerage accounts of their non-discretionary clients, subject to the dually registered firm complying with certain disclosure and client consent obligations.
The SEC has invited comment on all aspects of the Interim Rule until November 30.
The FPA decision, which invalidated an SEC rule and held that brokerage accounts were not advisory accounts regulated under the Advisers Act, is discussed in the Corporate and Financial Weekly Digest edition of April 6, 2007.