A Broker or An Advisor?

If you are like most registered reps, your card probably says you are a financial advisor—and not a stockbroker. Indeed, whether you work at a large Wall Street brokerage or a small broker/dealer, the odds are you are holding yourself out as a well-rounded financial advisor and not just, say, a stock jockey.

But what are the implications of such positioning? This is a hot topic among the financial planning community, as many descended on Denver on Friday, Sept. 10 for the Financial Planning Association’s annual conference. Many changes were visible from previous versions of the event, including an emphasis on global participation. But one topic was at the forefront as financial planners continue to try to define and bolster themselves as a profession: fiduciary status.

Obviously this word has a pretty important meaning among financial planners, since it describes someone “often in a position of authority that obligates himself or herself to act on behalf of another (as in managing money or property) and assumes a duty to act in good faith and with care, candor and loyalty in fulfilling the obligation” (according to thedictionary.com). As most advisors know, one who holds himself out to be a fiduciary is obligating himself to always put the client’s interests first.

Of particular concern for the FPA in this realm is the “broker-dealer exemption rule” to the Investment Advisers Act of 1940. Not surprisingly, many financial planners at the conference felt it was the biggest obstacle to retail investors getting sufficiently high standards of care from the financial services industry (that is to say, Series 7 holders or “mere” registered reps, who don’t have a fiduciary responsibility to their clients but only that an investment be “suitable”).

According to the FPA, the proposed rule, put in place in 1999, has allowed too many in the financial services community to pass themselves off as advice givers when they are often little more than salesmen with unclear profit motives—a clear violation of what it means to be a fiduciary. (Traditional brokerages retort that its reps are regulated plenty, and are, in fact, held to stringent suitability and risk profiling to keep client advice prudent.)

The FPA recently filed a lawsuit against the SEC to get rid of the proposed “broker-dealer exemption rule,” which for five years has allowed b/ds to operate under the Advisers Act under certain conditions:

• The advice is provided on a nondiscretionary basis.
• The advice is solely incidental to the brokerage services.
• The b/d prominently discloses that fee-based accounts are brokerage accounts.

• Dan Moisand, a CFP and principal with Spraker, Fitzgerald, Tamayo & Moisand, a wealth management firm in Orlando, Fla., offered the example of Malaysia in a response to the vast number of service providers out there purporting to offer “advice.” “Over there, if you misrepresent yourself in this way, you can face up to 10 years in prison and a $250,000 fine,” said Moisand. He proposed a softer approach, saying for starters, the FPA should build a fortress around the words “financial planning.” That is, if you use the words or advertise the services, you should in fact be a competent, trained financial planner.

  Don Trone, the president of the Foundation for Fiduciary Studies, and moderator of the panel discussion, asked the several hundred CFPs gathered in the ballroom, “How many of you consider yourselves fiduciaries?” Nearly 100 percent replied “yes.” To the question, “How many of you would leave the organization if the FPA incorporated fiduciary into its code of ethics?” Nearly all of them said they would stay and be held accountable.

  With so many different types of planners, some of them providing discretionary advice, some of them not, some of them fee-only, some of them not, a question was raised about “degrees of fiduciary status.” David Yeske, another member of the panel, and a fee-only planner with Yeske & Co. in San Francisco, acknowledged the fact that some planners outsource the actual advisement, and act purely as asset gatherers, but he didn’t mince words. “I think it’s like being a little bit pregnant. You either put the clients interest first, or you don’t. You can’t do it sometimes.”

  Moisand put it another way, “What we do is important. It can really screw up lives, so we should be held to a high standard.”