10th Circuit Interprets Broker-Dealer Exception From Advisers Act Registration

Thomas v. Met. Life Ins. Co. (10th Cir. Feb. 2, 2011)

February 2, 2011

The Tenth Circuit Court of Appeals issued a decision determining whether a "financial services" representative employed by a broker-dealer was acting as an unregistered investment adviser or if the representative fit under the broker-dealer exception to the definition of investment adviser for advice that is "solely incidental" to services as a broker or dealer and done without receipt of "special compensation." The court analyzed the legislative history and SEC interpretations of section 202(a)(11) of the Advisers Act, and found that the representative, who recommended and sold variable life insurance products to retail customers, was not acting as an investment adviser. The court stressed, among other things, that (1) the plain meaning of "incidental" included the type of recommendations made here, and (2) the representative received commission/transaction-based compensation that was not "special" or received solely for the giving of advice.

Please contact any of the following Cadwalader attorneys if you have any questions about this item:

Steven Lofchie; [email protected]

Jeffrey Robins; [email protected]

Maurine Bartlett; [email protected]

Glen Barrentine; [email protected]

Cross References

Investment Advisers Act § 202(a)(11)

Dodd-Frank § 913

CWT C&F Memo: Changes to the Regulation of Broker-Dealers and Investment Advisers Under Title IX of the Dodd-Frank Act (Sep. 1, 2010)

SEC Staff Study on Investment Advisers and Broker-Dealers (Jan. 2011)