SEC Staff Provides Guidance Under rule 202(a)(11)-1 under the Advisers Act

The SEC staff recently issued the attached letter, which provides interpretive guidance on select issues arising under Rule 202(a)(11)-1 under the Investment Advisers Act of 1940. The rule clarifies the circumstances under which a broker-dealer may rely on the exclusion from the definition of “investment adviser” under Section 202(a)(11)(C) of the Advisers Act. In particular, the rule provides that broker-dealers who provide non-discretionary advice, solely incidental to their brokerage services, regardless of the form of compensation received are not investment advisers for purposes of the Advisers Act.

The staff’s letter addresses the following questions:

• Must broker-dealers dually register as investment advisers if they “hold themselves out” for purposes of rule 202(a)(11)-1 by using advertisements that reference the availability of a broad range of investment advisory and financial planning services?
• What determines when a broker-dealer is providing a “financial plan” or “financial planning services” to a customer within the Advisers Act as opposed to services provided as part of a brokerage relationship subject to the Securities Exchange Act of 1934 and self-regulatory organization rules?
• May a firm that is dually registered as a broker-dealer and an investment adviser act as an investment adviser in providing financial planning services to a customer and as a broker-dealer in providing brokerage services to the same customer?
• Does a broker-dealer representative’s use of an educational or specialized training credential or degree such as “Certified Financial Planner” (“CFP”) on his business card or letterhead constitute “holding out” for purposes of rule 202(a)(11)-1?

Securities Industry FYI is a service of the BrokerDealer and Investment Management Practices of Morgan Lewis. If you have any questions concerning these important legal developments, please contact Morgan Lewis.