Wall Street Wants Flat-Fee Accounts Exempted from Investment-Adviser Rules

Last year, the titans of Wall Street, bowing to market pressure, introduced new flat-fee accounts: Rather than coughing up a commission for every trade, investors could instead pay annual fees pegged to the value of their assets. The plans, which knee-capped the incentive to churn client accounts to maximize commissions, have been a hit with consumers. More than $100 billion in assets have been collected in flat-fee accounts, helping Merrill Lynch and other full-service firms hold onto clients who might have strayed to discount brokers.

But now, it turns out, there is a decidedly consumer-unfriendly side to the new accounts. At the urging of the brokerage industry, the Securities and Exchange Commission has proposed a rule that would exempt these accounts from disclosure and suitability rules that have been in place since the Investment Advisers Act of 1940 was enacted. If adopted, the exemption would remove vital safeguards, say consumer advocates.

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