What does your business card say?
I'll bet it doesn't say stockbroker, but financial consultant or financial advisor or some other permutation on that theme. If you're an independent advisor, that's an accurate description of your role and not a problem for any regulatory body. But if you work for a wirehouse or regional brokerage, it is a problem — a growing one. That's because most reps are licensed under the Series 7 exam, which allows you to sell stocks, bonds and other securities for a commission. It doesn't allow you to dispense investment advice for a fee. But dispensing brokerage advice and collecting annual fees based on assets under management is precisely what the brass would have you do.
That's the problem. The Investment Adviser Act of 1940 was designed specifically for folks who collect a fee for giving advice. These registered investment advisors take the Series 65. Now, their trade groups are miffed because they think that brokers, the fee-based kind, should have to abide by the 1940 Act, just as they do. Recently, the Financial Planning Association asked the SEC to stop giving brokers an exemption from this act, which the agency has been doing on a temporary basis since 1999. The 1940 Act stipulates that investment advisors must disclose principal trades, qualifications, investment philosophies and conflicts of interest, among other things.
The SIA and some of the major brokerage houses counter that their brokers, who already are registered and regulated by the SEC and a host of other regulatory entities, should continue to be exempt from the 1940 Act, even as they take on advisory roles. Besides, some firms have already registered themselves as RIAs, according to the SIA.
Since the line between a broker and a financial advisor has blurred so much already, in practical terms, the dispute seems rather like splitting hairs. But let's face it, if you really want to offer your clients institutional-quality financial advisory services, you should be disclosing conflicts of interest, qualifications, philosophy and the like already. And you should be sharp enough to pass a Series 65 (or the Series 66, which is given to Series 7 holders). As our cover story on sales assistants (page 33) points out, the Series 7 qualifies you for the most basic functions of a modern broker — functions that many brokers now delegate to their assistants.
Calling all (wannabe) writers. Registered Rep. is accepting submissions for our Endpiece, which appears on the last page of the magazine each month (see page 120). The column should be a lighthearted personal essay about the financial advisory business. We're looking for stories, not more than 1,000 words, that, while personal in nature, also contain a kernel of wisdom for all readers. Among the amusing stories we have published: One wholesaler told readers exactly what he thought of brokers; another rep suggested ways to respond to clients who don't want to pay because they lost money. So, if you have a yen to write, please e-mail me at the address provided below.
We thank you for your support. Drop us a line with your comments at: 249 W. 17th St., New York, N.Y. 10011-5300. Or email us, email@example.com. Publisher Rich Santos can be found at firstname.lastname@example.org.