The Securities and Exchange Commission is considering an exemption from the Investment Advisers Act of 1940 for brokerage units that charge asset-based fees but exercise no discretionary authority in trading for their customers.

The rule, proposed Friday, would reflect a shift in brokerage firms' compensation practices. Merrill Lynch & Co., Morgan Stanley Dean Witter & Co., Prudential Securities, and PaineWebber Inc., among others, have announced plans to let customers trade on-line for asset-based fees. Under current rules, units offering such services must register as investment advisers.

The proposal reflects the SEC's view that the nature of the firms' services has not changed, even though the pricing has, said Robert E. Plaze, associate director in its investment management division.

"We are drawing a line based on the nature of the services provided, as opposed to the form the compensation is taking," he said.

Mr. Plaze added that wrap products would still be treated as advisory accounts.

The proposal would reduce some of the regulatory uncertainty, said David M. Minnick of the Kansas City, Mo., law firm of Berkowitz, Feldmiller, Stanton, Brandt, Williams & Stueve. Mr. Minnick, who represents brokerage firms, said the proposal is mostly positive for the brokerage industry.

Banks are beginning to offer on-line capabilities, and many that do charge a commission for each trade. But companies such as Citigroup Inc.'s Salomon Smith Barney unit have an asset-based option and other bank brokerage units may eventually follow suit.

Many brokerages are realizing they are not going to be competitive if they stick to a fixed compensation schedule, because customers want asset-based capabilities, said Bibb L. Strench of the Washington office of the Stradley Ronon Stevens & Young law firm. Mr. Strench represents investment advisory firms.

Rob Comfort, senior managing director of brokerage at Huntington Bancshares of Columbus, Ohio, said his unit may consider asset-based fees at some point, though there are no immediate plans to do so.

"I think everybody's still trying to figure out what the best pricing is in this arena," he said.

The proposal will be open for comment for 60 days after publication in the Federal Register, an SEC spokesman said.

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