SEC Asked to Bar Brokers From Calling Themselves ‘Advisors’

The Committee for the Fiduciary Standard is urging the Securities and Exchange Commission to take action against brokers and insurers calling themselves “investment advisors.”

“We are aware that terms such as ‘‘financial advisor’’ and ‘‘financial consultant’’ are among the many generic terms that describe the day-to-day functions of variously registered or licensed persons in the financial services industry,” the group, which has 1,100 investment advisors on its steering committee, stated in a letter. “However, the wide-scale use of misleading titles does not justify their continued use. If anything, this systemic use of misleading titles is contrary to the public interest and should be prohibited.”

The letter, directed to SEC Chairman Jay Clayton, wants brokers to refer to themselves as “broker” or “salesperson.”

Investment advisors are on board with the CFS letter, even though it remains unclear what, if anything, the SEC will do about the issue.

“I personally think that brokers should not be able to call themselves investment advisors,” said James Pollard, a marketing consultant to financial advisors at the AdvisorCoach.com, in Greenwood, Del.

That shouldn’t diminish the role of a stockbroker or insurance salesperson, Pollard said. But there are lines that shouldn’t be crossed.

“Their primary focus is brokering and not providing investment advice,” he added. “The people who help others outline financial plans, retirement strategies, tax strategies, etc. are the ones who should wear the ‘investment advisor’ title and wear it proudly.”

'Why Not Financial Services?'

There's much that the SEC can do except prohibit brokers from using the title.

“This is done in other industries, such as real estate, where there's a clear difference between realtor and real estate agent,” Pollard noted. “Why not financial services?”

Brokers should refrain from calling themselves advisors for a variety of reasons, but avoiding confusion among the U.S. public is at the top of the list, industry veterans said.

“Brokers should not be able to label themselves as investment advisors to clients and prospects,” said Stephen Nelson, a wealth advisor at Aldrich Wealth, a registered investment advisory firm in Carlsbad, Calif.

The investment advisory industry is so full of alphabet soup and industry jargon that it makes it extremely difficult to distinguish between people who are qualified to give advice versus those that want to sell products, Nelson explained.

“To call yourself an investment advisor you only need to have graduated high school and pass some low-bar exams,” he said. “I take issue when clients think they are working with an advisor who is giving them the best advice about their money, when really they are being sold proprietary products.”

The SEC should restrict the term “investment advisor” or “financial advisor” to independent advisor representatives at RIA firms or persons who have obtained the CFP or CFA designation, Nelson said.

It’s really not even the term “investment advisor” that matters, other financial professionals said.

“The issue is not with the title, but with the standard of client care that an advisor operates under,” said Matthew Stewart, president of Forestview Financial Partners in Delaware, Ohio. “You have one side that believes that all financial advisors should operate under the fiduciary standard.”

That means a legal requirement to put their clients’ interests ahead of their own; having to fully disclose all fees and costs; and having to disclose and manage any and all conflicts of interest between advisor and client.

“Then, you have the other side, who believes that continuing to operate under a suitability standard is good enough for their clients and their business,” Stewart added.

Dually Licensed

The issue is complicated by the fact that most advisors who are employed by (or affiliated) with a broker-dealer, are dually licensed as both a registered representative, and are able to sell commissionable investment products and receive commissions.

But they’re also acting as an investment advisor representative of their broker-dealers’ RIA, and are charging fees for investment advisory services.

“A client that has several accounts with one of these advisors certainly believes that the advisor has their best interests in mind,” Stewart said. “But from a legal perspective, they only have a fiduciary duty to the client when advising on the fee-based advisory account.”

Otherwise, the advisor can also sell that client a high-cost commission product in the other brokerage/commissionable account without much accountability, other than to document it was a suitable investment, Stewart said.

Still others say that it’s up to the public, and not Uncle Sam, to figure out who they’re talking to when making money management decisions.

“Frankly, this is much ado about nothing,” said Adham Sbeih, CEO at Socotra Capital, a real estate investment and lending firm based in Sacramento, Calif.

“Job titles are merely a means of succinctly describing someone's role within their business and/or industry,” Sbeih said. “But from a layman's perspective, job titles often mean nothing unless they take the time to develop an understanding of the industry in question, and the significance of one title versus another.”

The real issue is that people fail to do the necessary homework before choosing a financial partner.

“Limiting professionals as to how they title themselves will do nothing to address the public's ignorance,” Sbeih said.

Brian O'Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC's Guide to Creating Wealth. He's a regular contributor to major media business platforms. Brian may be contacted at [email protected].

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