December 27, 2011
The idea that brokers should be held to a fiduciary standard when giving "personalized investment advice" is probably the most ludicrous idea I have ever heard. Why does Congress listen to the lobbyists of professional membership organizations such as the Financial Planning Coalition (CFP Board, NAPFA and the Financial Planning Association) with an absolute vested interest in promoting a raising of the bar to entry level professionals to the benefit of their members over free market capitalism and the right of the consumer to decide the type of relationship they choose?
Why is the idea ludicrous? Simply because a series 6 or 7 registered representative should NOT BE GIVING personalized investment advice in the first place. That i the job of the "fiduciary registered investment adviser" (Read the title carefully)
It was the SEC that originally promoted AND defended the blurring of a very bright line separating investment advice from retail transactions when they introduced the Merrill Rule (as it was known) Ironically it was the Financial Planning Association that sued to have this rule rescinded, which it was, then they went ahead and joined a coalition to make brokers engaging in one-time retail transactions fiduciaries. It's just plain daft
First, show me where these registered representatives get their training and education to be providing "personalized investment advice" because I maintained a series 6, 7 and 24 registration with FINRA for years and can assure you, the training is nowhere near adequate to provide even basic investment advice,let alone "personalized investment advice" Series 6 and 7 is barely adequate training for a salesperson to get a foot in the door and relies heavily on the broker/dealer's training program to teach transactional sales techniques. Frankly, the series 65 doesn't provide any training that would qualify anyone to give "personalized investment advice" either. The difference is, one is still a fiduciary under the law and people who do register as investment advisers tend to take this very seriously and get additional training that DOES qualify them.
Let's be honest, the series 6,7,24 and 65 all provide extensive information and testing regarding securities regulations, not the giving of investment advice or financial planning. The only difference, the 65 registrant takes their training more seriously because of a fiduciary obligation. If you want the consumer to have NO choice between fiduciary advice and transactional sales advice, then do the right and proper thing... Eliminate the series 6 and 7 altogether. Believe me, if you try to make a salesman a fiduciary the lines for the 65 examination will be out the door and no one will be selling for a small commission any more, they'll all be on the fee bandwagon and why not? Who wants ongoing fiduciary liability for a quick sale on commission to a retail customer.
Conversely, who wants to be confused about exactly what kind of relationship they are actually having with an adviser/broker. The terms should not be interchangeable, but are thanks to total lack of enforcement and Chutzpah on the part of many broker dealers. IT IS TIME TO REDRAW THE BRIGHT LINE between "transaction" and "personalized advice" and make it clear that a series 6 and 7 should NOT be giving personalized investment advice, because this was NEVER the intent of the registration After all, if it was the intent that everyone give personalized advice, there would have been NO NEED for a 6 and 7 registration in the first place.
On a related topic, I also question why the SEC and States have given anyone with a CFP® Certification a pass on the securities exam series 65. This makes no sense either because, while CFP® Certificants may be equipped to offer investment advice and financial planning, they do not receive ANY training on State or federal securities laws. If you want to know why people shouldn't get a pass on securities regulatory exams, ask Jon Corzine. He got a pass and now shrugs his shoulders when asked where the violations occurred.
Finally, you CANNOT for a myriad of reasons address this issue of fiduciary liability for brokers without also addressing the regulation of the business of insurance issue at the federal level. This comment will become clearer by reading the attached report that I submitted to the office of the U.S. Dept. of the Treasury recently on this topic. Rather than reproduce the report, I am attaching it hereto and it should be considered a part of this submission. The points made in my attached report are salient and timely because insurance agents are competing for the same dollars as registered representatives and investment advisers using the same titles (CFP, CLU, ChFC, financial planner etc etc.) but with a completely different set of rules and NO fiduciary liability whatsoever.
If you are going to fix the securities industry it CANNOT and MUST NOT be done without also addressing the business of insurance at the federal level.
Kindly note in closing, I surrendered my FINRA registrations and am a fiduciary investment adviser only. This regulation does not affect me personally so I do not have a vested interest in the outcome.
Respectfully submitted,
Nigel B Taylor, CFP®