SEC should define ‘advisor,’ says CFA Institute
January 16, 2018 by Kenneth Corbin
With the fiduciary rule in question, a prominent industry association is calling on the SEC to issue guidance on the use of the term “advisor” when offering advice to retail investors.
The CFA Institute has drafted a letter asking the SEC to take steps–ahead of the full regulatory initiative it is contemplating–to clarify the way financial pros describe themselves and their services.
“We believe important improvements to oversight and practice are possible and straightforward by simply clarifying the current state of play in investment advice,” the draft letter reads. “Without complex regulatory changes, the SEC can create an important level of transparency around current practice.”
To be sure, the CFA Institute supports broader efforts to harmonize standards of care for advisors and brokers, citing investor surrounding confusion about requirements to act in a client’s best interests.
A representative for the CFA Institute says that the group is submitting its letter in part as a response to SEC Chairman Jay Clayton’s call for comments on a uniform fiduciary standard, and as an alternative proposal that the commission could act on in the shorter term.
Clayton singled out the uneven standards of care for RIAs and brokers early in his tenure, and the commission last month issued a regulatory agenda placing the Personalized Investment Advice Standard of Conduct item on its list of short-term actions. With the Senate voting to confirm two appointees to the commission late last month, the SEC starts 2018 with a full complement of commissioners, an important step in moving ahead with any major rulemaking proceedings.
Spokespeople at the SEC did not immediately respond to a request for comment on the status of the initiative.
The CFA Institute is asking the SEC to clarify which types of client services can only be provided by RIAs, who can use the term “advisor,” and to compel registered reps to make plainer disclosures about their conflicts of interest.
“Investor confusion about the roles and duties of different financial services providers using the word ‘adviser/advisor’ in their titles has become problematic from both an investor protection and trust standpoint,” the CFA Institute writes.
The group is calling on the SEC to stipulate that only RIAs registered under the Investment Advisers Act can provide clients with personalized investment advice, and therefore would be covered under the advisor’s best-interest fiduciary standard.
Such a move, which the CFA Institute says the SEC could make simply by issuing administrative guidance, would “require registration by those who provide such advice, regardless of their titles.”
“This will help move the needle for ensuring that only those abiding by a higher standard of care will be permitted to provide such advice to retail investors,” the letter states.
In addition to clarifying the advisor’s role, the CFA Institute is calling for an end to the exemption that allows brokers to avoid registering as an investment advisor by claiming that their advising activities are “incidental” to their core business.
“Financial service providers — in reliance on this exclusion — now use titles to describe themselves that are beyond a reasonable reading of ‘incidental’ and instead imply personalized advice,” the CFA Institute argues. “This includes use of the title, ‘financial advisor.'”
Finally, the group is calling for blunter disclosures about the business model of registered reps, appealing for the commission to require reps to make “prominent, clear, complete, consistent and ongoing disclosure to their clients that they are the agents of the brokerage firm that employs them, and that they do not legally represent the interests of the retail customer/account holder.”
