January 31, 2005
Im disappointed that the SEC has not withdrawn the broker dealer exemption from the requirement to register as a investment advisor before providing financial advice to consumers. I do not believe that the SEC can successfully craft a rule that draws a line between advice that is solely incidental to brokerage services and advice that is more. I believe that many consumers will not be able to fully appreciate the difference of what is being provided by an RIA in a fiduciary role and a broker who is not held to the same standard. Only a fully educated consumer, which will always be a small minority, will be equipped to understand the dramatic difference. I have no doubt that that the brokers I know who already position themselves primarily as personal financial advisors will continue to find ways to walk the line, and likely cross well over it when dealing one on one with uninformed investors. I doubt that any amount of disclosure will be adequate for the typical consumer to understand the difference.
Although the proposal to restrict brokers from marketing services as financial planning unless those fee-based accounts come under Adviser Act oversight is an important step forward, I believe that it is still likely to result in two different standards of conduct for essentially the same service. Most consumers will fail to understand the difference. Brokers will continue to turn out free or inexpensive canned financial plans that are designed to sell their proprietary products, leaving many consumers with the impression that they are getting the same thing that an RIA might provide after 40 hours of customized financial work done with their best interest at heart. Im disappointed that the SEC is not prepared to say that ALL financial planning advice given to consumers should ALWAYS be in the clients best interest. The only way to do that is to make everyone who provides such advice live up to to the Investment Advisory Act.
I understand that requiring all those who provide financial planning advice to register under the act is a huge step given that most people who hold themselves out to be financial advisors are not currently registered. However, I believe that consumers deserve stronger action to protect their interests. Failure to do so waters down the value of financial planning and deprives consumers of a clear understanding of the benefits of truly objective advice provided by someone who is required to act in their best interest. There is an elephant in the room, and I believe that continuing to allow non-fiduciaries to provide advice that is not necessarily in the consumers best interest under the label of financial planning, no matter how incidental, will not fix the problem. Incidental advice may be a synonym for advice without adequate knowledge or worse yet, advice meant to enrich the advisor at the expense of the consumer. Tighter rules or disclosures might teach the elephant to dance, but its still an elephant who will be trying to pretend its a ballerina.