The Department of Labor should carve out an exemption in its proposed fiduciary rule for sales people, advisor Michael Kitces is arguing.

Such a  "salesperson's exemption" would let brokers, insurance agents and other financial professionals continue to sell investment products so long as they don't lead their clients to believe they are financial advisors, Kitces said in a recent comment letter on the proposed DOL fiduciary rule..

“One of the most straightforward ways to re-assert a clearer line for consumers between advice and sales is simply for the DOL to permit insurance agents and brokerage representatives to continue to be salespeople ... so long as the professional does not hold themselves out as being a financial advisor or market that they offer financial planning,” said Kitces, who is the co-founder of the XY Planning Network and a frequent commentator on fiduciary issues.

The Department of Labor asked specifically for comment on how a retirement advice provider's professional title may or may not create an expectation of trust and confidence. For example, if a professional holds herself out as a "financial advisor," do prospective retirees who hire her presume that the professional will make recommendations that are in their best interest—even if that professional isn't actually obligated to do so?

Kitces said he not only believes the answer is a resounding “yes,” but sees a “salesperson’s exemption” as a way to separate sales from advice in the investor’s mind.

As it stands, all sales professionals are able to call themselves “financial advisors,” despite the fact that only registered investment advisors are required to adhere to a fiduciary duty that requires them to place investor interests above all others. In contrast, brokers and reps have been able to use “best interest” standards and exemptions to sidestep such a fiduciary standard. 

“Such a 'salesperson's exemption,' which would allow insurance and brokerage salespeople to avoid the DOL's fiduciary obligation in the Retirement Security Rule, would apply to salespersons who (1) avoided holding themselves out as financial advisors or financial planners, (2) avoided marketing that they offer any financial advice or financial planning services, (3) and provided disclosures on all sales presentations or illustrations to the effect that the engagement does not constitute advice and that the consumer should consult an actual financial advisor about the appropriateness of the sales recommendation,” Kitces told the DOL.

This approach would allow insurers and broker-dealers “to continue acting in a purely sales function, without meeting the additional regulatory burdens of being a fiduciary advisor," Kitces said.

He said it would also allow the DOL to defend against the type of court challenges it faced with its last fiduciary rule, which was struck down when the courts agreed that the fiduciary standard should only apply to advisors and not to salespeople who are not in a "relationship of trust and confidence’ with their clients."

Others agree that the use of the "financial advisor" title works to confuse consumers.

“The DOL and SEC should coordinate on a rulemaking regarding titles,” said Ron Rhoades, director of the Personal Financial Planning Program at Western Kentucky University and a frequent commentator on fiduciary issues.

“There was a time when the SEC opined that brokers should not seek to obscure the ‘merchandizing’ aspect of their relationship with their customers. We need to return to that time,” added Rhoades, who said he believes investors “should be able to determine if they are  in an arms-length relationship, in which [buyer beware] applies" or in a relationship with a fiduciary.

However, Knut Rostad, co-founder and president of the Institute for the Fiduciary Standard, which advances the cause of fiduciary advice, called Kitces’ “salesperson exemption” proposal “perfect in law and principle and unenforceable in practice. The industry will do anything to obfuscate to avoid telling a simple truth.”

The broker-dealer industry has also been resistant to restrictions on the use of the "financial advisor" title.

“An independent financial advisor’s title should reflect the range of the profession, which is much, much more than sales,” Dale Brown, President & CEO of the Financial Services Institute, said.

“Independent financial advisors provide a wide range of support and services to their clients, and most of our members are dual registrants. They assist in developing financial plans that serve as a roadmap to help clients achieve their financial goals; and they provide support and financial guidance as clients navigate life transitions.... All of that is in addition to general account management and providing financial product suggestions, and do so acting in the best interest of their clients,” Brown added.

LPL Financial has directly opposed such limits on reps' titles in the past. “We believe that restricting the use of ‘advisor’ or ‘adviser’ while allowing similar descriptors, such as ‘financial consultant’ or ‘wealth manager,’ would be unlikely to advance investor protection in the way the commission intends. Prohibiting specific titles would inevitably spawn a proliferation of new titles that would contribute equally to investor confusion,” Michelle Oroschakoff, chief legal officer at LPL, the nation's largest independent broker-dealer, said in an earlier comment on the SEC’s attempt to limit titles.