The advice profession faces serious questions regarding their portrayal of staff members as "advisors" versus "salespeople," according to a new report.
At many broker-dealers, staff who are identified as financial advisors in marketing materials are described as little more than salespeople in legal filings, according to a recent report by the Consumer Federation of America (CFA).
The CFA compared how 25 major broker-dealer and insurance firms present themselves and their services on their websites to how they describe their services in their legal challenge to the Department of Labor’s fiduciary rulemaking. A longtime critic of the brokerage business, the CFA has been a staunch supporter of the DOL's fiduciary rule, which several appointees to the incoming Trump administration and member of Congrees have vowed to void.
In most cases, the CFA charged that broker-dealers used their websites to present themselves as providing fiduciary advice, as an enticement to potential clients. Yet when these broker-dealers participated in critical responses to the DOL rule filed by various trade organizations, they claimed that they were not engaged in any fiduciary relationships with their clients.
“It comes down to this: Are they financial advisors or are they just salespeople?” asked Barbara Roper, CFA director of investor protection and co-author of the report, in a released comment. “Put another way, are they lying to the court, or are they lying to their customers? The answer to that question has multibillion-dollar implications for millions of American workers and retirees who turn to financial professionals for help with their retirement investments. After all, people expect salespeople to look out for their own interests and maximize profits, but advisors are expected to meet a higher standard.”
This isn't the first time the CFA has tried to paint brokerage firms in a negative, black-and-white light, financial professionals in both the RIA and B-D worlds argue. Brokers with securities licenses frequently offer advice that doesn't involve product sales, as do RIAs and other fiduciaries, they say.
Moreover, fiduciaries also face some of their own set of conflicts centering on asset management fees that aren't very different from the issues brokerages wrestle with. Even if the DOL rule survives in a Trump administration, these conflicts aren't going to disappear. Nonetheless, the CFA's claim that B-Ds were using securities laws to minimize their liabilities is accurate, according to brokers.
In “Financial Advisor or Investment Salesperson: Brokers and Insurers Want to Have it Both Ways,” which looks at the practices of the largest U.S. financial firms, salespeople were found to be functioning as investment advisors who must be legally held to a best-interest, conflict-free standard of advice, according to the authors.
On all of the broker-dealer websites, financial professionals are routinely referred to a “financial advisors” or they are given synonymous designations, according to the report. Nowhere are they referred to simply as sales representatives or agents, and the websites indicate that the professionals have the expertise that may be relied upon by less-sophisticated clients. According to the CFA, not one website referred to financial professionals as “salespeople.”
As of Aug. 24, the CFA found that several broker-dealers explicitly described their financial professionals as “financial advisors” on their websites, including Janney Montgomery Scott, D.A. Davidson, Stifel, Wells Fargo Advisors, HD Vest, Baird, Raymond James, Ameriprise, Edward Jones, BB&T Scott and Stringfellow, Chase, UBS, Morgan Stanley, Signator Investors, Lincoln Financial and VALIC.