Two fiduciary advocacy groups, the CFA Institute and the Committee for the Fiduciary Standard, submitted letters to the Securities and Exchange Commission urging the regulators to provide clarity and guidance on the definition of “investment advisor.” The term “advisor” is used by both fee-based professionals who must adhere to a fiduciary standard of conduct and commission-based registered representatives who must adhere to the less stringent suitability standard.
The SEC, which pledged to work with the Department of Labor on retail advice standards, requested the public’s input last summer on standards of conduct for investment advisers and broker-dealers when they provide investment advice to retail investors.
“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 letter said. “This is so, particularly when it is understood that a so-called financial advisor is typically a registered-representative/broker who is an agent of a brokerage firm and who is not legally or practically, representing the interests of the customer.”
The Committee for the Fiduciary Standard noted that dually registered brokers and investment advisers are adding to the confusion.
“They can act in one capacity with one client, and the other capacity with another client. Or, act in both capacities for the same client,” said the Fiduciary Standard letter. “How is an investor to know if that person is acting as a securities broker or an investment adviser at any given point in the relationship? They are two different roles, with different methods of compensation and different loyalties.”
SEC Commissioner Michael Piwowar, an outspoken opponent of the DOL’s fiduciary rule, has gone on record stating that the “advisor” title may confuse investors, going so far as to say that the title “means absolutely nothing.”
A recent Wall Street Journal article disclosed that the SEC working on its own fiduciary rule that would affect all brokerage accounts and “could ban brokers from calling themselves financial advisers unless they accept a strict duty of loyalty to clients.” The rule proposal is expected in the second quarter of 2018.
The DOL fiduciary rule, which maintains that those who provide retirement investment advice must act in the best interests of their clients, is currently under review as ordered by President Trump.
Certain rule provisions were extended for 18 months until July 1, 2019. During the extended transition period, fiduciary advisers must continue to provide advice that adheres to “impartial conduct standards.”