XY Planning Network, the coalition of fee-only financial planners founded by Michael Kitces and Alan Moore, is suing the Securities and Exchange Commission for creating what they say is an unfair competitive advantage for broker-dealers with the agency’s Regulation Best Interest investment-advice rule.

Mr. Kitces and Mr. Moore filed the suit Tuesday in the U.S. District Court for the Southern District of New York.

The lawsuit follows a similar lawsuit filed Monday by seven states and the District of Columbia against the SEC and agency chairman Jay Clayton claiming the investment-advice rule, which is meant to lift the standard for how brokers work with clients, is too weak.

Like the states, XYPN says the SEC ignores a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act that says regulations for broker-dealers should be no less stringent than those for registered investment advisers when it comes to delivering financial advice.

But XYPN is also arguing that Reg BI fails to meet rules laid out in the Investment Advisers Act of 1940 that require anyone delivering financial advice for compensation to register as an investment adviser and be subject to the fiduciary standard. Under Reg BI, neither brokers nor dual registrants who market and deliver financial planning services are required to register as an investment adviser, Mr. Kitces said.

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“The SEC has now allowed the giving of financial advice without a fiduciary standard, which was never allowed or intended by the Investors Act of 1940,” Mr. Moore added. “It has created and will continue to create immense amounts of consumer confusion and is ultimately anti-competitive to financial planners … who are holding themselves out as fiduciaries.”

Mr. Kitces added: “If they recognize that our suit has merit and they don’t want to actually have the whole rule vacated, certainly another option is they can amend the rule that they published to move financial planning to the RIA side and we’re open to that conversation. We’re not here to die on the hill of charging all the way up, must vacate the rule no matter what.”

He commended the SEC for what he said was a well-intentioned attempt to lift the standard for brokers. The problem is that brokers moving into the advice business will not be held to the same rules as RIAs.

“Our position is not that brokers are bad and evil and should not do business,” Mr. Kitces said.”Our concern is specifically broker-dealers that are delivering comprehensive financial planning and able to do so under a lower standard.”

When asked how XYPN will demonstrate it has standing to bring the lawsuit, Mr. Kitces said the network accounts for more than 5% of all state-registered investment advisers offering financial planning in the country. The network participates in the registration of these firms and provides ongoing support; allowing financial planning to be done at a broker-dealer takes business away from XYPN, he said.

“It puts all of our XYPN members at a disadvantage when they actually have to be fiduciaries when they are doing financial plans because they don’t sell products, but if they did sell products they could deliver identical financial plans subject to a lower standard,” Mr. Kitces said.

“We think we have a good shot at standing, perhaps better than the states,” he added.

XYPN is working with Gupta Wessler, a law firm known for representing plaintiffs and public-interest clients in high-stakes and often controversial appeals cases.

(This story has been updated to clarify the XY Planning Network’s opinion on vacating the SEC rule.)