To file an electronic comment, advisors and interested parties can use the SEC’s internet comment form: http://www.sec.gov/rules/interp.shtml or email their comments, including File Number S7-09-18, to: [email protected] . Make sure to include File Number S7–09–18 in the subject line.
Also noteworthy, the SEC advisor proposal seeks to expand definitions of advisor conflicts and the need for disclosure, stating that even advisor recommendations to add assets to an advised account, if accepted by the client and resulting in advisor fees, is a conflict that must be disclosed, according to Reish.
Such conflicts would include advisor recommendations to transfer IRAs from other firms and recommendations to participants to take plan distributions and to roll over to an IRA with an advisor.
“While those conflicts may not be obvious, others are,” Reish said. “For example, any payments which result partially or entirely, directly or indirectly, from investment recommendations or decisions would be conflicts of interest which must be disclosed. That would likely include allpayments from third parties, for example, payments from custodians that are based on recommended transactions.”
The concept that disclosure, even though accurate (for instance an advisor who states that she or he “may” receive 12b-1 fees), may be inadequate for informed consent in the proposal, which appears to be an expansion of existing standards or, at the least, appears to conflict with current practices, Reish said.
“The SEC appears to be taking a more aggressive posture on disclosures of conflicts of interest. As a result, RIAs should closely review their Forms ADV Part 2A to make sure that the disclosures are clear, affirmative, and thorough. Advisors may want to comment on the “full and thorough” disclosure position taken by the SEC, and perhaps seek additional guidance on the SEC’s expectations,” Reish said.
The fiduciary expert also underscores possible confusion with the SEC’s proposed limitations regarding the titles brokers can use when describing themselves.
“The SEC has determined that certain names and titles used by broker-dealers, including “financial advisor,” contribute to retail investor confusion and, as a result, could mislead investors into believing that they are engaging an investment advisor, when they are not,” Reish said. As a result, the SEC proposes to limit the use of the terms “advisor” and “adviser.” More specifically, the proposal is that only investment advisors can use the words “advisor” or “adviser.
“While that distinction works well when comparing a stand-alone registered investment advisor with a stand-alone broker-dealer, the SEC position is more confusing when applied to a dual-registrant broker-dealer/RIA,” Reish said. “That is because dually registered firms (those firms registered as both a broker-dealer and an investment advisor) would be allowed to use “advisor” and “adviser” in the names or titles of the representatives, so long as the representative is both an individual advisor representative and a registered representative of the broker-dealer.”