More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- U.S. Securities and Exchange Commission Information This information sheet contains general information about certain provisions of the Investment Advisers Act of 1940 and selected rules under the Advisers Act. It also provides information about the resources available from the SEC to help advisors understand and comply with these laws and rules.
As always, Stephen Winks posted some very poignant comments to my June 28 blog, “Some Shots in the Arm for a True Fiduciary Standard,” about SROIIA and indications that the SEC may “decouple” the fiduciary standard for brokers from the issue of “harmonizing” broker and advisor regulation. In them, Steve makes a relatively minor observation to his point, but one that immediately brought back a flood of memories that tie directly to our current situation.
In a paragraph about the various types of “advice,” he writes: “…financial planning is needs-based selling unless it is continuous and comprehensive in nature which is technologically beyond the reach of the vast majority of individual advisers…” Without addressing his broad use of the term “advisers” (which is in itself a problem for another blog), his point is sadly far closer to the truth than most folks in the “financial planning community” want to admit.
To wit, it brings back a memory from at least 20 years ago, sitting in the voluptuous office of the head of financial planning of one of the largest “financial planning” broker/dealers at the time, interviewing her for some story that now escapes me. Suddenly, one of her assistants rushed in, apologizing for the interruption, and handed her a report that she “really needs to see.” After quickly scanning the document, the financial planning chief broke into a euphoric smile, and exclaimed: “This is great news. Our data finally confirms that our financial planners sell 35% more product than our brokers.”
Of course, back in the ‘90s, brokerage firms across the country were making the same “discovery,” that financial planning is, indeed, a powerful marketing tool. Even the CFP Board jumped on the bandwagon with its now infamous “CFP Lite” initiative. The effect of this widespread embracing of financial planning was to derail both the emergence of the planning profession and the rehabilitation of its pubic image.
At the time, financial planning was riding the wave of fee-paid asset management to finally overcome its sigma as a major distribution channel of many of the ill-fated tax shelters and limited partnerships of the 1980s. The bull equity market was more than 10 years old (with a few “corrections”), and burgeoning allocated client portfolios were all the rage.
Suddenly, so was financial planning. Rather than the platform for client-centered advice that it was becoming, in the decade of the ‘90s, financial planning combined with asset management went mainstream—becoming the marketing message of Wall Street brokers, insurance agents and even accountants. And its use as a differentiator for client-centered advisors was gone. With the introduction of wrap accounts, even the “fee-only” advantage was obscured.
Which brings us to the present. While nobody seemed to care enough about financial planning to defend it from being co-opted by the financial services marketing machine, the SEC and courts drew the line at investment advice itself.
In a series of regulations and rulings over the past decade (most notably FPA v. the SEC), attempts to act as investment advisors without being investment advisors have been thwarted time and again. The issue has culminated in the current battle over perhaps the most important duty of an investment advisor—the fiduciary standard—and when brokers cross that line.
At stake in this debate is the last differentiator for client-centered advisors: If brokers are allowed to call themselves fiduciaries without truly being fiduciaries, having a “fiduciary duty” will indeed become the next powerful marketing tool.