New York Stock Exchange Regulation announced that the U.S. Securities and Exchange Commission has approved a new exchange rule that requires firms to provide investors with significant disclosure on non-managed fee-based accounts.

In addition to providing clients with essential information on these non-managed fee-based accounts, including an explanation of how costs are computed, NYSE member firms now must specifically monitor these types of accounts to determine if investor activity may warrant changing over to a traditional commission arrangement or other type of brokerage account.

“With an increasing number of investors considering fee-based accounts, it makes sense that customers are adequately informed of the risks,” said Richard Ketchum, chief regulatory officer, NYSE. “If investors do select a fee-based account, firms must undertake periodic reviews to determine if the account remains suitable over time.”

An alternative to traditional brokerage accounts that charge commissions on trades, non-managed fee-based accounts charge a fixed cost, or percentage of the account’s value, instead of commissions. These types of accounts do not include investment advisory services.

This type of account offered by broker-dealers is an increasingly popular investment option, but may not suit all customers, the NYSE says. “While non-managed fee based accounts are subject to long-standing NYSE rules governing investment suitability and supervisory review, their unique features requires specifically tailored oversight. A non-managed fee-based account may be appropriate for customers who trade frequently, as the cost per trade declines as the number of trades rises,” it explains. “A non-managed fee-based account may not be appropriate for customers who expect fewer trades. For this type of customer, greater cost efficiency might be realized in a traditional pay-per-trade commission structure.”