Consumer and RIA groups back survey that supports "Merrill" rule overthrow. Stockbrokers and financial planners who provide investment advice should be governed by the same rules, according to a national survey of investors polled by Opinion Research and sponsored by the Zero Alpha Group (ZAG) and the Consumer Federation of America.

In March 2007 a U.S. district appeals court overturned a controversial Securities and Exchange Commission (SEC) rule that allowed brokers to offer investment advice without registering as fiduciaries under the 1940 Investment Advisers Act.

"Investors deserve a regulatory approach that they can understand, where financial professionals who use the same titles and offer the same services are subject to the same high standards," says Barbara Roper, director of investor protection at the Washington, D.C.-based Consumer Federation. "The recent court decision overturning the fee-based brokerage-account rule offers an opportunity for the [SEC] to adopt such an approach. As the SEC confronts these issues, it must acknowledge that disclosure alone is not an answer."

Not exactly disinterested

The Consumer Federation also says the SEC's two-year campaign to heighten disclosure around fee-based accounts hasn't worked. The Opinion Research survey suggests that 29% of U.S. investors view stockbrokers primarily as purveyors of financial advice and 25% see them as traders and advisors in roughly equal measure. Those rates match results from a 2004 survey.

"The latest ZAG-CFA survey is a strong and direct challenge to the wisdom of any appeal by the SEC of the federal court decision overturning its widely criticized and ineffective 'broker-dealer' rule," says Gregory Carlson, founding principal of Northfield, Minn.-based Carlson Capital Management, a ZAG member firm.

The SEC's fee-based-account exception for brokers is usually called the "Merrill" rule after Merrill Lynch, one of the leading fee-based account distributors. "Broker dealer" rule is a more recent coinage.

The ZAG-backed Opinion Research survey also indicates that 54% of investors would be "much less" or "somewhat less likely" to rely on stockbrokers for investment advice if they were subject to weaker investor protection rules.

Princeton, N.J.-based Opinion Research polled U.S. 2,052 adults and selected 1,073 who described themselves as investors.

ZAG is a network of nine independent registered investment advisory (RIA) firms that collectively manage around $7 billion in assets.

RIAs, fiduciaries governed by the 1940 Act, are seen as beneficiaries of the Merrill rule's demise.

And its demise could be temporary. The SEC is expected to appeal the court ruling. -FWR

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