Kitces was referring to a landmark victory for the Financial Planning Association, which sued and won, when the SEC attempted to expand broker-dealers’ exemption to offer advice through rulemaking in 2005. The SEC rule was vacated by the D.C. Circuit Court of Appeals in 2007.

Merril Hirsh, the Washington D.C.-based attorney who represented the FPA in the lawsuit, told Financial Advisor magazine, “The case established that there are obvious limitations on what the SEC can do and that it was beyond the authority of the SEC to create a broader exception than Congress provided for brokers in the Investment Advisers Act.” 

“We argued that the statute said unless brokers fit the narrow solely incidental exemption, they’re holding themselves out as investment advisors and are subject to registration and the SEC agreed,” Hirsh added.

“The Commission makes this change to the scope of the 'solely incidental' advice clause without acknowledging it is doing so, or justifying how such a change is legally permissible, especially in light of the court’s ruling in FPA vs SEC regarding the Commission’s limitation to expand the broker-dealer exemption,” he said.

“Simply put, a firm should not be able to market itself as being in the business of advice and using financial advisors or synonymous titles, and then rely on an exemption to avoid being held accountable for that advice under the ’40 Act that was only intended to apply to 'incidental' advice that is occurring by chance or without intent,” Kitces said.

“The marketing itself of such firms unequivocally affirms that the advice is not incidental and not occurring by chance or without intent,” he argued.

Kitces also noted that in both the Financial Services Institute (FSI) and the Securities Industry and Financial Markets Association (SIFMA) briefs asking the court to overturn the DOL fiduciary rule, they insisted that their brokers should not be held to a standard that they are in a relationship of trust and confidence with their customers.

“Either the brokerage industry should be believed for their marketing and use of titles as financial advisors ... or should be believed for their statements to the Fifth Circuit Court of Appeals in the Department of Labor’s fiduciary rule that they are not in the business of advice and not in an advice relationship of trust and confidence with their customers. But it surely cannot be both,” Kitces said.

“In other words, the problem is not that broker-dealers are giving advice without being subject to a fiduciary standard under Finra regulation; the problem is that broker-dealers giving such advice are required to register as investment advisers, and if they did, they would already subject them to the fiduciary standard that applies to registered investment advisers, rendering the entire Regulation Best Interest proposal moot anyway!” Kitces said.

Consumer confusion is unavoidable, Kitces said. “It is unclear how any consumer could understand their choices given the Form CRS disclosure that broker-dealers “must act in your best interest and not place our interests ahead of yours” while investment advisors “are held to a fiduciary standard” which the SEC defines as the obligation to “act in the best interest of the client” as well!” he said.