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 their business and offers to provide the public for compensation. Further, throughout the nearly 1000 pages of the proposal, the Commission refers to getting investment advice from broker/dealers.
Problem is B/Ds aren’t truly supposed to be giving advice.
The Investment Advisor Act of 1940 states that “A broker or dealer that is registered with the SEC under the Securities and Exchange Act of 1934 (“Exchange Act”) is excluded from the Act if the advice given is:
i. solely incidental to the conduct of its business as broker or dealer,
ii. and (ii) it does not receive any “special compensation” for providing investment advice.”
The B/D is exempt because their role is to facilitate transactions, NOT to give advice. Once they get 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 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.
Presentations Are Misleading
I’m not necessarily opposed to someone changing roles and I do favor preserving choice but the choices must be accurately presented. When the client doesn’t know the standard has dropped when the role changes, what is often referred to as “hat switching,” becomes a classic bait and switch maneuver and the SEC should put a stop to it.