If there is a plain English, layman’s definition of the role of a fiduciary, it is to act in another’s best interest. To call a non-fiduciary role a “best interest” role is horribly misleading.
Advisors are fiduciaries. Registered reps are not. The SEC acknowledges this and deserves some credit for proposing to ban the use of the title “financial advisor” by persons not registered as an advisor or IAR. That change is long overdue. I hope it adds “financial planner” to that and that it is enforced soon.
To bring further clarity for the public, the SEC proposes a new “Customer/Client Relationship Summary.” I like the idea behind the CRS document, but the SEC’s sample document has more BS in it than a cattle ranch. It doesn’t just fail to clarify things, it muddies the waters further and goes out of its way to present brokerage services as equivalent to advisory services.
What Is An Investment Advisor?
To understand why this is terrible from a consumer protection standpoint, we should look at the actual law of the land, passed by Congress and held up by the courts as recently as 2007 when the Financial Planning Association successfully sued the SEC over the commission’s last major attempt to weaken consumer protections at the behest of the brokerage industry.
Section 202(a)(11) of the ’40 Act defines an investment advisor as “any person or firm that: for compensation; is engaged in the business of; providing advice to others or issuing reports or analyses regarding securities.”
“Advice … regarding securities.” What is that exactly?
According to the staff of the Investment Adviser Regulation Office, in the SEC’s Division of Investment Management, in its report, “Regulation of Investment Advisers by the U.S. Securities and Exchange Commission” March 2013:
i. advice about market trends is advice about securities;
ii. advice about the selection and retention of other advisers is advice about securities;