A new court ruling could have a big effect on your investments if you currently hold a fee-based brokerage account.
The U.S. Court of Appeals for the District of Columbia Circuit recently ruled that effective October 1, brokerage firms may no longer offer fee-based advisory accounts to clients. Current accounts must be closed and the assets moved to commission-based or other accounts.
The reason for the change? At the urging of the
Financial Planning Association, the court agreed that stockbrokers are not trained or licensed to provide investment advice, in part because they are salespeople whose income is derived from commissions. Investment advisors, on the other hand, are licensed as advisors and, unlike brokers, have a legal obligation to act in their clients’ best interest.
This means that if you are one of the one million consumers who hold a fee-based brokerage account, your account will be affected. Most accounts will be converted to commission-based accounts, which could mean higher fees for the consumer. If you do currently hold a fee-based brokerage account, it’s important you contact your brokerage firm as soon as possible to discuss your options, and determine how any changes to your account will affect how much you pay for the firm’s services.
One option noted by Don Blandin, President and CEO of nonprofit organization Investor Protection Trust (IPT), is to simply close your brokerage account and retain the services of a licensed investment advisor.
He advises doing your homework beforehand – for example, checking out the advisor with your state securities regulator (in Michigan, the
Office of Financial and Insurance Services). See IPT’s booklet "
Getting Help With Your Investments" for more advice on investing.
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