On April 12, 2005, the Securities and Exchange Commission (the "SEC") announced the adoption of a new rule concerning the application of the Investment Advisers Act of 1940, as amended (the "Advisers Act"), to broker-dealers. The Advisers Act regulates the activities of investment advisers – defined asany person who "for compensation, engages in the business of advising others . . . as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities. New Rule 202(a)(11)-1 (the "Rule") addresses the scope of Section 202(a)(11)(C) of the Advisers Act, which currently excepts from the registration and other requirements of the Advisers Act, broker-dealers that provide investment advice which is "solely incidental" to their brokerage business, and for which they do not charge any "special compensation" (the "BD Exception"). Under the Rule:

• Broker-dealers will be subject to Advisers Act registration if they exercise discretionary authority over accounts, or hold themselves out as financial planners, or provide advisory services pursuant to a separate advisory contract or for a separate advisory fee;

• Advisers Act registration will not be required where a broker-dealer charges an asset-based or a fixed fee (rather than commissions, mark-ups or mark-downs), provided certain conditions are met and certain disclosures are made; and

• Advisers Act registration will not be required simply because a broker-dealer charges higher commissions for full-service brokerage than it does for discount brokerage.

As a result, broker-dealers whose registered representatives provide investment advice, or have some measure of discretionary authority over customer accounts, will need to become familiar with the Advisers Act’s requirements and determine whether they apply to some or all of the broker-dealer’s activities.