January 17, 2005
I have worked as a broker for some 15 years. I also own a firm, Focus Capital, that is a registered investment advisor. Therefore I believe I bring some balance to the question of brokerage firms using fee-based programs and the advice that they give.
Over the years, I have dealt with many in the public who were very confused because of dealing with brokers who refer to themselves as “Financial Consultants” or “Financial Counselors”. Almost without exception, these people were sold a product and received very little financial planning, though they were under the impression the “counselor” was working for them, and represented them. Only later did it become clear to them that this was a broker relationship.
It’s very easy for a broker to register so that he/she can give advice and so that proper disclosure is given if they wish to receive commission. Therefore no hardship is created under the current rules for any broker who would like to be a registered investment advisor.
For those of us who are both brokers and registered investment advisors it is very easy to draw a distinction between the two different services. They are separate and distinct. However for those who wish to blur the line and only be licensed as a broker and at the same time pretend to give unbiased advice, the lines are easily blurred, almost always resulting in harm to the general public (clients). The less educated the client is, the more damage that is typically done.
As it is relatively easy for any broker/dealer to comply with the rules as they are written currently, and as there is great harm done to the public who are invariably sold products by those pretending to give them advice with the clients best interests at heart, I would urge the SEC to make a complete withdrawal, not a revision of this proposed rule.
This proposal provides for two different standards of conduct by brokers and advisors in providing similar services. There is already confusion because of brokers attempting to push themselves as consultants or counselors. I realized early in my career that there could be no line drawn between financial planning services that are incidental to brokerage and those that are not. That is why I made a decision that to clearly comply with the law, I would have to register as an investment advisor in addition to being a broker.
There is no such thing as “incidental financial planning”. “Incidental financial planning” is incomplete financial planning. “Incidental financial planning” does tremendous harm to clients. Either financial planning is being done properly in the best interests of the client, or products are being sold in a sales relationship as a broker.
It dismays me to hear of brokers being called by names, such as “Investment Counselor”, and the like, which clearly are designed to give the impression that they are doing financial planning or giving advice, when that is not the case. Brokers are not in the best position to give this type of planning when they easily could be registered so that they could give this type of planning and be forced to live up to the higher standards required by the Investment Advisor Act of 1940.
Nicholas B. Rowe, CFP®
Certified Financial Planner Practitioner™
President Focus Capital, Inc.
Branch Manager/Broker Jefferson Pilot Securities Corporation