The next cannon shot is about to boom in the financial industry civil war.

The Securities and Exchange Commission has until May 14 to appeal a March 30 ruling by the U.S. Court of Appeals for the D.C. Circuit.

The battle pits tens of thousands of financial planners against 660,000 brokers. At stake: the almost 1 million fee-based brokerage accounts with almost $277.4 billion in assets.

The court ruled that the SEC overstepped its authority by allowing brokers to hold themselves out as investment advisers without requiring them to act as fiduciaries.

The SEC’s stance prior to the court decision had allowed brokers to compete with financial advisers who were held to the standards and liabilities of financial fiduciaries.

Incensed at what it saw as an uneven playing field, the Financial Planning Association sued the SEC in ‘04.

The SEC declined to comment as of Thursday on its next step, according to spokesman John Heine. The agency could ask the full circuit court for a rehearing.

The SEC also could appeal to the Supreme Court.

Another option is for the agency to amend its rules.

The National Association of Securities Dealers, through a spokesman, said it would be premature to comment on the litigation until the SEC decides how it will proceed.

Last month, the Securities Industry and Financial Markets Association urged the SEC to seek a rehearing. SIFMA is an industry group representing securities firms, banks and asset managers.

The battle focuses around broker-dealers who offer fee-based accounts. They ran almost 1 million accounts for investors, with $277.4 billion in assets as of Dec. 31, according to Cerulli Associates.

“A key issue is how much brokers must disclose to their clients,” said FPA Chairman Dan Moisand.

It affects the extent to which advisers must put client interests before their own. The FPA says advisers are held to a higher standard than most brokers. Because of that, they face greater liability if they fail to meet that higher standard.

Determining Disclosure

That inequality bars them from some potentially profitable practices in which they say that brokers can engage. Those practices potentially can be profitable to brokers at the expense of clients, the FPA says.

“A key difference is that brokers can execute trades from inventory,” Moisand said. “They can keep the spread on what they buy from one customer and sell to another. There’s nothing inherently wrong with that. But they don’t have to get their customer’s permission and disclose the spreads. And they don’t face a best-execution requirement. Our advisers do.”

Advisers with fiduciary duty must disclose qualifications, pay structure, disciplinary history and any conflicts of interest, Moisand says. Most brokers don’t have to, he says.

Investors’ flexibility will be cut if the current ruling stands, according to a new poll for SIFMA.

“…Consumers prefer to have a range of investment choices instead of being forced into cookie-cutter accounts with a single type of investment professional,” SIFMA President Marc Lackritz said in a release.

But the only reason choices would decline, Moisand says, is that brokerages would refuse to offer accounts that bar their salespeople from conducting business as they do now.

The fiduciary duty held by non-brokerage advisers stems from the Investment Advisers Act of 1940. That requires advisers to register with the SEC or state regulators.

But in 1999 the SEC adopted a rule that exempted broker-dealers that offer fee-based brokerage accounts from registering as advisers.

Such accounts make up about 20% of all retail brokerage accounts, SIFMA says.

In 2005, the SEC began requiring tougher disclosure. Brokers running fee-based accounts had to alert investors to the fact that the accounts technically are not for advice. They also had to point out that they may be subject to conflicts of interest.

About 31% of the U.S.’s 660,000 brokers are registered as investment advisers. They generally have the same fiduciary duty of nonbrokerage advisers. Their 327,000 accounts have $90.8 billion in assets.

“A problem is that brokerages market themselves as offering investment advice,” Moisand said. “Yet clients may not realize they’re signing up for a brokerage account. So the broker even if he’s a registered adviser isn’t held to the higher fiduciary duty.”

Investors often don’t understand the difference. An April 26 poll of investors found that only 30% understand that the “primary service” by brokers is to sell securities, not to give investment advice. About 91% of investors said brokers and planners offering advice should be subject to the same disclosure rules.

The poll was done for the Consumer Federation of America and the Zero Alpha Group, made up of independent investment advisory firms.

Investment advice is lucrative. Big-firm brokers earn $240,000 a year on average, says Tiburon Strategic Advisors. Fee-only planners who also are registered advisers average $262,000. Other planners make an average of $168,000.

The next cannon shot is about to boom in the financial industry civil war.

The Securities and Exchange Commission has until May 14 to appeal a March 30 ruling by the U.S. Court of Appeals for the D.C. Circuit.

The battle pits tens of thousands of financial planners against 660,000 brokers. At stake: the almost 1 million fee-based brokerage accounts with almost $277.4 billion in assets.

The court ruled that the SEC overstepped its authority by allowing brokers to hold themselves out as investment advisers without requiring them to act as fiduciaries.

The SEC’s stance prior to the court decision had allowed brokers to compete with financial advisers who were held to the standards and liabilities of financial fiduciaries.

Incensed at what it saw as an uneven playing field, the Financial Planning Association sued the SEC in ‘04.

The SEC declined to comment as of Thursday on its next step, according to spokesman John Heine. The agency could ask the full circuit court for a rehearing.

The SEC also could appeal to the Supreme Court.

Another option is for the agency to amend its rules.

The National Association of Securities Dealers, through a spokesman, said it would be premature to comment on the litigation until the SEC decides how it will proceed.

Last month, the Securities Industry and Financial Markets Association urged the SEC to seek a rehearing. SIFMA is an industry group representing securities firms, banks and asset managers.

The battle focuses around broker-dealers who offer fee-based accounts. They ran almost 1 million accounts for investors, with $277.4 billion in assets as of Dec. 31, according to Cerulli Associates.

“A key issue is how much brokers must disclose to their clients,” said FPA Chairman Dan Moisand.

It affects the extent to which advisers must put client interests before their own. The FPA says advisers are held to a higher standard than most brokers. Because of that, they face greater liability if they fail to meet that higher standard.

Determining Disclosure

That inequality bars them from some potentially profitable practices in which they say that brokers can engage. Those practices potentially can be profitable to brokers at the expense of clients, the FPA says.

“A key difference is that brokers can execute trades from inventory,” Moisand said. “They can keep the spread on what they buy from one customer and sell to another. There’s nothing inherently wrong with that. But they don’t have to get their customer’s permission and disclose the spreads. And they don’t face a best-execution requirement. Our advisers do.”

Advisers with fiduciary duty must disclose qualifications, pay structure, disciplinary history and any conflicts of interest, Moisand says. Most brokers don’t have to, he says.

Investors’ flexibility will be cut if the current ruling stands, according to a new poll for SIFMA.

“…Consumers prefer to have a range of investment choices instead of being forced into cookie-cutter accounts with a single type of investment professional,” SIFMA President Marc Lackritz said in a release.

But the only reason choices would decline, Moisand says, is that brokerages would refuse to offer accounts that bar their salespeople from conducting business as they do now.

The fiduciary duty held by non-brokerage advisers stems from the Investment Advisers Act of 1940. That requires advisers to register with the SEC or state regulators.

But in 1999 the SEC adopted a rule that exempted broker-dealers that offer fee-based brokerage accounts from registering as advisers.

Such accounts make up about 20% of all retail brokerage accounts, SIFMA says.

In 2005, the SEC began requiring tougher disclosure. Brokers running fee-based accounts had to alert investors to the fact that the accounts technically are not for advice. They also had to point out that they may be subject to conflicts of interest.

About 31% of the U.S.’s 660,000 brokers are registered as investment advisers. They generally have the same fiduciary duty of nonbrokerage advisers. Their 327,000 accounts have $90.8 billion in assets.

“A problem is that brokerages market themselves as offering investment advice,” Moisand said. “Yet clients may not realize they’re signing up for a brokerage account. So the broker even if he’s a registered adviser isn’t held to the higher fiduciary duty.”

Investors often don’t understand the difference. An April 26 poll of investors found that only 30% understand that the “primary service” by brokers is to sell securities, not to give investment advice. About 91% of investors said brokers and planners offering advice should be subject to the same disclosure rules.

The poll was done for the Consumer Federation of America and the Zero Alpha Group, made up of independent investment advisory firms.

Investment advice is lucrative. Big-firm brokers earn $240,000 a year on average, says Tiburon Strategic Advisors. Fee-only planners who also are registered advisers average $262,000. Other planners make an average of $168,000.