SEC to Tighten Adviser Rules to Shield Investors

The Securities and Exchange Commission said Wednesday that it plans to tighten rules on investment advisers in an effort to increase consumer protections and loosen a congressional logjam that appears to be stalling pivotal legislation.

The new rules would prohibit investment advisers from making unsuitable recommendations to their clients and would bar them from making investment decisions in client accounts unless the client is receiving periodic account statements directly from an independent custodian.

In explaining the account statement rule, SEC Chairman Arthur Levitt cited the case of Steven Wymer, a California investment adviser who defrauded his clients of more than $100 million by falsifying their account statements. If an independent custodian had been required to send statements to the clients rather than to Wymer, the fraud would have been quickly detected, Levitt said.

SEC insiders hope the rules will shake loose a congressional logjam that is stalling far more pivotal reform. The quarterly statement and recommendation issues were items of contention between House and Senate conferees attempting to pass the Investment Adviser Act.