Financial Planning Association v. Securities And Exchange Commission

482 F.3d 481 (D.C. Cir. 2007)

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Nature of the Case

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Facts

Brokers and dealers are not subject to the requirements of the Investment Advisers Act ('IAA') where their investment advice is (1) 'solely incidental to the conduct of [their] business as a broker or dealer,' and (2) the broker or dealer 'receives no special compensation therefor. D promulgated a final rule exempting broker-dealers from the IAA when they receive 'special compensation therefor.' The IAA was enacted 'to provide for the registration and regulation of investment companies and investment advisers.' The IAA arose from a consensus between industry and the SEC 'that investment advisers could not 'completely perform their basic function - -furnishing to clients on a personal basis competent, unbiased, and continuous advice regarding the sound management of their investments -- unless all conflicts of interest between the investment counsel and the client were removed.'' Under the IAA, investment advisers are required, among other things, to register and to maintain records, to limit the type of contracts they enter, and not to engage in certain types of deceptive and fraudulent transactions. Congress broadly defined 'investment adviser' as any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities ….' Congress then carved out six exemptions from this broad definition. This case addresses the broker-dealer exemption; any broker or dealer [1] whose performance of such services is solely incidental to the conduct of his business as a broker or dealer and [2] who receives no special compensation therefor. Before the IAA, broker-dealers and others who offered investment advice received two general forms of compensation. Some charged only traditional commissions. Others charged a separate advice fee. The statutory exemption for broker-dealers reflected this distinction. D passed a rule to include brokers who receive special compensation for their advice but provide disclosure regarding the fact that they are not registered. P contends that when Congress enacted the IAA, Congress identified in subsection (C) the group of broker-dealers it intended to exempt, and that subsection (F) was only intended to allow the SEC to exempt new groups from the IAA, not to expand the groups that Congress specifically addressed. P sued D contending that D exceeded its authority under the Act in adopting its new final rule about broker exemptions.