The XY Planning Network and its executive chairman and co-founder, Michael Kitces, have filed petitions with the Securities and Exchange Commission asking the agency to create rules to once and for all clarify who can and can’t call themselves an advisor.
The network is asking the SEC to finish a 2005 proposed rule to restrict brokers from holding themselves out as financial planners or from offering financial planning services, since these services are not “solely incidental” to their brokerage services—a requirement of the Investment Advisers Act of 1940.
During a call with reporters, Kitces said his first petition asks the SEC “to recognize that if you’re giving financial planning advice, it can’t be solely incidental to a brokerage sale. It’s advice and it should be regulated as such, which means being an RIA fiduciary.”
The entire genesis of the Investment Advisers Act “was to create a clear separation between the tipsters and touts that sold brokerage products and the bona fide investment advisor,” Kitces said. The 2005 rule was vacated by a federal court in 2007, and the SEC hasn’t revisited it since.
The second petition asks the SEC to revisit Advisers Act Section 208(c), which stipulates that “if you market that you’re offering investment counsel services as a financial advisor or financial planner, you should have to be one, which again would entail RIA status and the fiduciary rules that apply to it,” Kitces said.
“Today, we call upon the SEC to modernize this important provision of the Investment Advisers Act and clarify that firms providing investment counsel today, even by a different name, are still subject to the limitations” of Section 208(c) of the Advisers Act, Kitces said.
What does it mean in today’s environment, Kitces asked, if the rule says you can’t represent yourself as investment counsel unless you’re an RIA? “When a broker markets that they’re an investment advisor in an ongoing relationship with clients, they’re representing that they’re an investment counsel and that would violate what’s written in the act.”
The XY Planning Network is a national consortium of fee-only advisors.
Knut Rostad, founder of the Institute for the Fiduciary Standard, said in an interview with Financial Advisor that the XY Planning Network’s rationale is correct. “Kitces makes a compelling case the institute agrees with completely—that the SEC and the [CFP Board] have made a mush of the [Investment Advisers Act] core principle, which spells out the need to separate sales and advice.” Still, Rostad added, Kitces’s petition strategy may be a heavy lift in D.C.’s legal swamp.
Kitces said the XY Planning Network is decisively not asking the SEC to implement a uniform fiduciary standard. The organization unsuccessfully pursued legal action to overturn Regulation Best Interest in 2020, but that is not part of its new initiative, Kitces told reporters.