August 25, 2004
Too many brokerages are offering exempted fee-based programs as advice relationships or through their financial advisors, financial consultantsor similar sounding titles. Disclosing that the account is a brokerage account is not the least bit informative to the public. If the advice is solely incidental, the SEC should demand that the advertising around such programs avoid the use of the word advice, any form of the word advice, or any similar term or title that a consumer could reasonably construe to imply an advisory relationship such as planning consulting and management.
In addition to the name games I describe, I believe the consumer has an unequivocal right to know about the education, qualifications, disciplinary history, and conflicts of interest presented by the people from whom they receive advice. This is about restoring professional standards and the integrity of the Advisers Act. The rule essentially allows broker-dealers to avoid the fiduciary and disclosure standards of the Investment Advisers Act of 1940 while acting as investment advisers and offering financial planning services. We are now approaching five years of inaction by the SEC on a rule proosal that dilutes consumer protection and related disclosure and ethical conduct standards for the financial planning profession.
This is not about forms of compensation. I understand and agree with the good intentions of the SEC in wanting to align stockbrokers interest more closely with their customers through innovative programs, however, lowering standards is not the way to do this. Brokers should be able to provide fee-based advice but they should also meet an appropriate high standard of conduct when working with the public. What I fail to understand is why the SEC would propose a rule that allows brokerage firms to misrepresent and actively market themselves to investors as trusted advisers instead of disclosing their true role as sales agents -- under the B-D rule. The critical problem with the rule proposal is that it allows stockbrokers to call themselves financial planners, financial consultants, financial advisors and the like, and to provide fee-based financial planning services under more lenient broker-dealer sales regulations. The rule permits broker-dealers to avoid the higher, more appropriate standards of a professional adviser, namely those of fiduciary investment advisers registered with the Commission or subject to the standards under which I also operate as a CFP practitioner in a financial planning engagement.
The standards of the Investment Advisers Act of 1940 and those of the CFP Board Code of Ethics and Professional Responsibility are very similar. Both require disclosure of conflicts of interest, the advisers qualifications, any disciplinary actions taken against him or her, and an obligation to place the clients interests above the advisers. The public deserves no less.