## Facts

- The Investment Advisers Act of 1940 (IAA) defines “investment adviser” to include persons who, for compensation, engage in advising others about securities.
- The IAA excludes broker-dealers from the definition when (1) the advice is “solely incidental” to brokerage business and (2) the broker-dealer receives “no special compensation therefor.” (IAA § 202(a)(11)(C)).
- The IAA also authorizes the SEC, by rule, to exclude “such other persons not within the intent of this paragraph” from the definition of “investment adviser.” (IAA § 202(a)(11)(F)).
- The SEC adopted Rule 202(a)(11)-1 (“fee-based brokerage rule”), which treated certain broker-dealers as not being investment advisers even when they received “special compensation,” if their advice was solely incidental to brokerage services and they provided specified disclosures in fee-based programs.
- The Financial Planning Association petitioned for review in the D.C. Circuit, arguing the SEC exceeded its statutory authority by adopting the rule.

## Issues

1. Whether the SEC exceeded its authority under IAA § 202(a)(11)(F) by exempting certain broker-dealers receiving “special compensation” from IAA coverage.
2. Whether § 202(a)(11)(F) permits the SEC to modify or override the specific broker-dealer exclusion in § 202(a)(11)(C), which conditions the exclusion on the absence of “special compensation.”

## Decision

- The court granted the petition for review and vacated the final rule.
- The majority held the SEC lacked authority under § 202(a)(11)(F) to exempt broker-dealers who receive “special compensation” for advice covered by § 202(a)(11)(C).
- The court read § 202(a)(11)(F) as permitting exclusion of “other persons” not already addressed in the statute, not as authority to revise a specific exclusion Congress carefully limited.
- Judge Garland dissented, concluding the statute was ambiguous and the SEC’s interpretation should have been upheld under Chevron deference.

## Legal Principles

- An agency may not use a general exemptive provision to negate or revise an express statutory condition in a more specific provision.
- Under IAA § 202(a)(11)(C), broker-dealers are excluded from “investment adviser” status only if their advice is solely incidental to brokerage and they receive no special compensation for that advice.
- IAA § 202(a)(11)(F) authorizes the SEC to exclude “other persons” not within the intent of the investment-adviser definition, but does not authorize expanding the broker-dealer exclusion beyond Congress’s stated limits.

## Conclusion

The D.C. Circuit invalidated the SEC’s fee-based brokerage rule because it effectively removed Congress’s “no special compensation” limitation from the broker-dealer exclusion, exceeding the SEC’s authority under the IAA.


Fin. Plan. Ass’n v. Sec. & Exch. Comm’n, 482 F.3d 481 (D.C. Cir. 2007)