To bring further clarity for the public the Commission 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 FPA 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, Division of Investment Management of the U.S. Securities and Exchange Commission in “Regulation of Investment Advisers by the U.S. Securities and Exchange Commission” March 2013, the SEC staff has stated:
i. advice about market trends is advice about securities;
ii. advice about the selection and retention of other advisers is advice about securities;
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