iii. advice about the advantages of investing in securities versus other types of investments (e.g., coins or real estate) is advice about securities;
iv. providing a selective list of securities is advice about securities even if no advice is provided as to any one security; and
v. asset allocation advice is advice about securities
Those are indeed the things the public thinks it is getting when it works with an “advisor.” Those are also the things a large part of the financial services industry advertises as its business and offers to provide the public for compensation. Furthermore, throughout the nearly 1,000 pages of its proposal, the SEC refers to getting investment advice from broker/dealers.
The problem is that B-Ds aren’t truly supposed to be giving advice.
The Investment Advisers Act of 1940 states that “A broker or dealer that is registered with the SEC under the Securities and Exchange Act of 1934 is excluded from the act if the advice given is:
i. solely incidental to the conduct of its business as broker or dealer; and
ii. it does not receive any “special compensation” for providing investment advice.”
The B-D is exempt because its role is to facilitate transactions, not to give advice. Once it gets into determining what the transactions should be for a given client, the advice is integral, not incidental. Holding out as an “advisor” should make the advice integral, not incidental.
The fundamental consumer protection problem is that too many firms, or their reps, are using the language about the fiduciary standard but delivering a brokerage relationship in which the advisor standards do not apply.