On April 12, 2005, the SEC issued a release announcing the adoption of new rule 202(a)(11)-1, addressing the application of the Investment Advisers Act of 1940 to broker-dealers offering certain types of brokerage programs. The new rule relates to section 202(a)(11)(C) of the Advisers Act, which excepts from the definition of "investment adviser" a broker or dealer "whose performance of (advisory) services is solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefore" (the "broker-dealer exception"). Under the rule, a broker-dealer providing advice that is "solely incidental" to its brokerage services is excepted from the Advisers Act if it charges an asset-based or fixed fee (rather than a commission, mark-up, or mark-down) for its services, provided it makes certain prescribed disclosures about the nature of its services. The rule states that exercising investment discretion is not "solely incidental to" either the business of a broker or dealer within the meaning of the Advisers Act or brokerage services within the meaning of the rule. The rule also states that a broker or dealer provides investment advice that is not "solely incidental" if it charges a separate fee, or separately contracts, for advisory services. In addition, when a broker-dealer provides advice as part of a "financial plan" or in connection with providing "financial planning services," it provides advice that is not solely incidental if it: (i) holds itself out to the public as a financial planner or as providing financial planning services; or (ii) delivers to its customer a financial plan; or (iii) represents to the customer that the advice is provided as part of a financial plan or financial planning services. Finally, under the rule, broker-dealers are not subject to the Advisers Act solely because they offer full-service brokerage and discount brokerage services (including electronic brokerage) for reduced commission rates. Release Nos. 34-51523; IA-2376; available at http://www.sec.gov/rules/final/34-51523.pdf.

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