In 1999, the
SEC
concluded that fee-based accounts afforded benefits to brokerage customers, and after considerable controversy adopted a new rule that allows
brokers
to continue to use titles such as investment adviser and financial adviser while still being exempt from investment adviser registration and disclosure rules. But the rule, which went into effect in 2005, requires brokers to provide customers with a statement similar to the following:
Your account is a brokerage account and not an advisory account. Our interests may not always be the same as yours. Please ask us questions to make sure you understand your rights and our obligations to you, including the extent of our obligations to disclose conflicts of interest and to act in your best interest. We are paid both by you and, sometimes, by people who compensate us based on what you buy. Therefore, our profits and our salesperson's compensation, may vary by product and over time.
The rule also directs
brokerage firms
to provide a contact person at the firm to answer consumers’ questions about the differences in broker and adviser regulation. The intent of the new rule is to help investors understand the differences between brokers and advisers.
