January 27, 2005
I had the good fortune to hear Commissioner Paul Atkins speak to us last week in Denver at the CFP Board of Governors meeting. The SEC regulation should provide more clarity to consumers, not less. Examples of problems with this proposed rule: One, Mr. Atkins indicated that brokers would be subject to the 1940 law only if financial planning dwarfs brokerage. How do you define dwarfs? By dollars received? By time? By marketing? Brokers can manipulate the details to avoid exceeding the limitation regardless of how you define it -- given the current language. The definition of the distinction needs to be clear. Instead of narrowing the solely incidental to exception, you have made it so large it is virtually meaningless.
Second, instead of referring consumers to an unbiased resource, you enable the firm itself to provide clarification. This situation will be difficult to monitor, likely to result in biased information, and not in consumers best interest. Why not refer the consumer to the SEC website or phone line? The cost would be minimal much less than ongoing monitoring of every brokerage firm and you would control the results Why would anyone object to this course of action unless they want to blur the answers?
You see the ads -- the pseudo soccer mom who is a financial advisor broker, the financial advisor broker giving a wedding toast... The brokerage firms are heavily selling financial planning. The consumer would be an idiot NOT to believe that he is getting financial planning/investment advice and that brokerage is incidental. So it is highly injust and dangerous to enable the brokers to slip under the exemption from the 40 Act if they deliver what they advertise. They are financial advisors to the public and brokers to the regulators? It makes no sense.
You have the opportunity to reasonably define what is advisory services and what is transactional. Please exercise your duty.
You have the opportunity to do the right thing for the public. I co-owned a broker-dealer in the 1980s and understand the situation. I also have owned an RIA firm since 1982. So, I dont make these comments lightly.