As reported in the April 2007 FSAU, the US Court of Appeals for the District of Columbia vacated Rule 202(a)(11)-1 under the Investment Advisers Act of 1940, which had exempted certain broker-dealers providing fee-based brokerage accounts from registering as investment advisers under the Advisers Act, finding that the SEC had exceeded its statutory authority in adopting the rule. In what has been described as a major blow to the brokerage industry, the SEC announced on May 14 that it will not appeal the controversial decision. The SEC's decision comes just days after SEC Commissioner Paul Atkins stated that the SEC would be "well justified" to ask for a rehearing. Due to the operational difficulties caused by the vacation of the rule, the SEC asked the court to grant a four-month stay of its March 30 decision to allow investors and their brokers to implement changes in the accounts affected.

On May 14, 2007 the Securities Industry and Financial Markets Association (SIFMA), which represents the brokerage industry, issued a press release opposing the SEC's decision not to seek a rehearing, expressing "outrage" at the decision. SIFMA maintains that a rehearing would be beneficial because the court did not address public policy concerns or the merits of fee-based brokerage accounts. According to SIFMA, applying the Advisers Act to broker-dealers is duplicative because they are already subject to extensive regulation under the Securities Exchange Act of 1934 and SRO rules. SIFMA argues that the one million investors who utilize the fee-based brokerage method will be disadvantaged by the ruling. Investors that currently have fee-based brokerage accounts are now forced to find alternative types of accounts. Eliminating the availability of fee-based accounts could lead to investors being enrolled in commission-based accounts resulting in increased costs compared to those in a fee-based brokerage accounts, where annual fees average one percent of total assets. Many firms have also reported to SIFMA that the SEC request of four months to respond to the ruling is insufficient due to the number of accounts and logistics involved.

The reaction to the SEC decision not to appeal has been varied among brokerage firms. Some firms have begun to shut down their fee-based brokerage programs. Several major firms reportedly have advised their brokers not to open any more of these accounts and are discussing alternatives to the fee-based brokerage programs to cater to the investment needs of their clients. Other firms are refusing to alter their financial strategies and have advised their brokers to continue using the full range of services that make sense for their clients.

The SEC has said that it will consider whether additional rulemaking or interpretation is necessary regarding the application of the Advisers Act to these accounts and other issues resulting from the court's decision.