Are you an advisor or a broker? Yes, we know, you're a financial advisor, or a wealth manager — or whatever fancy term you use to win clients and gather assets. And that's just the problem: Many Series 7 holders out there are positioning themselves to their clients as financial advisors (that's what it says on the business card), offering to create investment policy statements, asset allocation plans and picking the actual investments.
The trouble is, that's outright financial advice. Unless you file a Form ADV with the SEC under the Investment Advisers Act of 1940 (or work as an investment advisor representative, IAR, for a firm that does), you're probably a Series 7 holder — or as the law considers you, a broker, more salesman than advisor. Because the District Court of Appeals for the District of Columbia vacated the 8-year-old broker/dealer exemption (which exempted reps from the 1940 Act, under certain conditions), you really can't be offering financial advice. You can only broker the sale of a security.
In May, the SEC filed a 120-day stay to let firms figure out what they're going to do about the million or so accounts that are classified as fee-based brokerage. But I have an idea (and I'm not the only one): Why not re-write the law? After all, the Securities Exchange Act of 1934, which created registered reps, and the Advisers Act of 1940 were written in different times. Since the needs of clients have changed, why not force everyone who calls himself a financial advisor to register with the SEC and become a fiduciary? After all, Americans today need proper financial advice — we're a more sophisticated country than we were in the 1930s, financially anyway. As one industry source told me recently, “If you're using planning tools and proactively recommending asset allocation, you need to accept the responsibility.” That would certainly make things easier. So, Congress needs to re-work the securities laws so that broker/dealers can still do principal trading and allow their advisors to act as fiduciaries. Time to get with the times.
Errata
In a May story entitled “The Great Reckoning,” Registered Rep. wrote that Robert W. Baird does not have an investment advisory division (RIA). In fact, the firm is dually registered. In addition, the story cited a Baird rep who said the firm would not allow its reps to become investment advisor reps (IARs) so as to prevent them from acting as fiduciaries. The firm says most Baird reps already are IARs and act as fiduciaries in “certain capacities.” We regret the errors.
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