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Investment Advisers: Exemption from Conflict-of-Interest Rules Extended


8/15/14

Synopsis
 
On August 12, 2014, the Securities and Exchange Commission (SEC) effectively extended Rule 206(3)-3T1 from the Investment Advisors Act of 1940 to December 2016. The rule gives investment advisers an alternative for complying with the regulations governing their trading. The rule allows investment advisers to avoid violating the conflict-of-interest restrictions of the Investment Advisers Act when trading securities for clients out of the brokerage firm's account.2
 
Issue
 
This extension is the fifth time in seven years that the SEC has used the same regulatory title to issue the same exemption from its conflict-of-interest rules for investment advisers. The rule was initially published in 2007 following a decision by the U.S. Court of Appeals for the District of Columbia Circuit in Financial Planning Association v. SEC. As a result of the decision, a rule under the Investment Advisors Act stating that fee-based brokerage accounts were not advisory accounts and were not subject to the law was invalidated.
 
The last version of the exemption was issued in 2012. Each case of extension positioned the measure as an interim fix; however, the latest extension demonstrates that it may be nine years before the SEC permanently addresses the rule.
 
Contact
 
For more information, please contact Jay Levy, Partner and Financial Services Industry Practice Leader, at 646-254-7412. To learn more about CohnReznick’s Financial Services Industry Practice, visit our webpage.


[1] Release No. IA-3893, Temporary Rule Regarding Principal Trades With Certain Advisory Clients
[2] http://www.sec.gov/rules/proposed/2014/ia-3893.pdf


This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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