A group of independent financial advisers plans to issue a report next month that reviews the range of their activities and whether some of those activities may require them to register as broker-dealers in the wake of new guidance released by the Securities and Exchange Commission last year.
The report is to be written by a committee of the National Association of Independent Public Finance Advisers.
NAIPFA approved the makeup of the committee and charged it with writing the report at its annual meeting last month in Miami, according to Steve Larson, NAIPFA's chairman. Larson is an executive vice president and director at Ehlers & Associates Inc. in Naperville, Ill.
The committee is co-chaired by Kathleen A. Aho, a principal at Springsted Inc. in St. Paul, and Robert C. Bendzinski, chairman of Bendzinski & Co. in Detroit.
Once the report is completed, NAIPFA members will try to meet with Securities and Exchange Commission officials to discuss the concerns raised and to obtain guidance, Larson said.
"If there are areas of business that we do that are areas of concern, we just need some guidance so that we can avoid those activities or decide whether to register as a broker-dealer," Larson said. "We need to have a common stance on what this means individually and to us as a group of independent financial advisers."
NAIPFA's concerns stem from the SEC staff's revocation last year of the relief from broker-dealer registration requirements that it gave Dominion Resources Inc., a Richmond-based electric utility, 15 years ago. The revocation did not affect Dominion Resources because its activities have changed; but, it jolted independent financial advisers, who pride themselves on not being connected to any broker-dealer firms.
In a 1985 no-action letter, the SEC staff said it would not recommend enforcement action if Dominion Resources undertook a series of activities, which included introducing an issuer to a commercial bank as an initial purchaser of bonds for a commission-based fee.
However, the staff reversed itself in a March 7, 2000, letter, saying that with the increased use of the Internet, it needed more regulatory flexibility to determine when firms should register as broker-dealers. The staff said it was wrestling with the issue of when firms are brokers that must register as broker-dealers and when they are merely "finders" that are not subject to registration requirements.
The Securities Exchange Act of 1934 defines a broker as someone that is "engaged in the business of effecting transactions in securities for the account of others."
NAIPFA members worried about the implications of the SEC staff's action at a meeting they held in New York City last fall. The financial advisers were concerned they might have to register as broker-dealers if they help issuers with private placements of municipal securities. One member worried that broker-dealer registration would be required if an adviser helped an issuer find an underwriter for a negotiated transaction of municipal securities.
"By the lifting of that no-action letter a year or so ago, we need to know what, if anything, that means to us," Larson said. "If there are areas of concern, we need to identify them."
