A year after the SEC's modification of the Merrill Lynch Rule, officially called "Broker-Dealers Deemed Not To Be Investment Advisers," Release 34-51523, is a good time to take a hard look at its actual effect in the marketplace.

Release 34-51523 is a 117-page document acknowledging that brokerages increasingly charge asset-based fees rather than commissions; that they are advertising comprehensive advice rather than brokerage services; and that this is because their traditional bailiwicks--transaction and brokerage services--have been commoditized. Based on exactly these points, the Financial Planning Association and consumer groups have argued that brokers should become Registered Investment Advisers, who are regulated by the SEC and held to legal fiduciary standards.

Somehow, the SEC came to the opposite conclusion. I think this was a realpolitik decision that has more to do with the wirehouses' clout in Congress, and the SEC's fear of 150,000 brokers filing their ADVs and waiting for their next in-office audit, than with the facts of the case. ("You sold these widows and orphans WHAT? What, exactly, is the last tranche of a collateralized mortgage obligation?") But the SEC did try to provide some protections so that a consumer could know whether he was working with an RIA-registered fiduciary or a broker under the NASD's less rigorous suitability rules.

First, the SEC required brokerages that didn't register their reps as RIAs to develop new account forms containing this explanation: "Your account is a brokerage account and not an advisory account. Our interests may not always be the same as yours. Please ask us questions to make sure you understand your rights and our obligations to you, including the extent of our obligations to disclose conflicts of interest and to act in your best interest. We are paid both by you and, sometimes, by people who compensate us based on what you buy. Therefore, our profits, and our salespersons' compensation, may vary by product and over time."

More significantly, the SEC ruled that if a brokerage or broker provides a financial plan or planning services or holds themselves out as a financial planner, then RIA registration is required. To prevent any weasel wording, the release stipulated that the brokerages "must treat as advisory clients all those customers to whom it delivers a financial plan, regardless of what it chooses to call the plan."

I recently asked my newsletter readers how this was working in the real world and had a chance to talk off-the-record with some brokers who have been functioning as real financial planners within wirehouses. One who works at Merrill Lynch got a general message from headquarters stating that there would be changes in how he could describe his services. "They aren't going to let me call myself a financial planner anymore," he says. "I've been telling [my clients that] I'm a financial planner for years. Do I have to go back and tell them I'm something else?"

A CFP planner who works at UBS was told essentially the same thing, and then had his discretionary asset management accounts yanked because, he was told, he wasn't trading enough. "I tried to tell them that not trading the accounts was good, and that I was providing services other than shuffling funds around," he says. "But those other services are financial planning."

Compliance departments are also blocking brokers from offering comprehensive plans by crippling their in-house software. In the first upgrade after the Feb. 1 compliance deadline, the Merrill broker discovered that Merrill's Interactive Financial Foundation software would no longer do many of the estate- and tax-planning functions that he used to offer clients. Brokers with New England Securities found that the version of Financial Profiles that was approved for in-house use would no longer address multiple planning issues at the same time: it will only run a few modules in the same 30-day period.

This seems to be a sort of bizarro, left-handed interpretation of what the SEC intended. Instead of, "let's register brokers who deliver the full complement of planning services," the response is, "let's make sure they don't function as planners, so we won't have to register."

The SEC was even more concerned that the public might be confused by advisory-related marketing and advertising. But brokerages have hardly scaled back their claims for offering advice. The Winter Olympics and NCAA basketball tournament were rife with powerful images of happy retirees and smiling families, thanks to the care and wisdom of the "financial advisers" or "financial counselors" employed at these brokerages.

This nomenclature didn't happen by chance. When the SEC commissioned a study to find out whether consumers knew the difference between a financial planner, a financial adviser, a financial counselor, a financial analyst, a financial investment counselor or an investment specialist, the result was total confusion. The larger firms clearly co-opted these apparently synonymous terms, figuring that if the public doesn't know the difference, it's not their problem.