CFA Institute Calls for SEC Enforcement of “Investment Adviser” Title

CFA Institute, the global association of investment management professionals, yesterday called on the SEC to implement a simple solution to significantly reduce current investor and consumer confusion about who is providing them investment advice and the duties owed to their clients. The decades-long confusion about client loyalty and duties of care will get much less confusing if these proposals advance, said CFA Institute.

“Use of titles similar to that of registered investment advisers (RIA) has created confusion for investors, many of whom mistakenly believe that people calling themselves ‘financial advisors’ have the same legal fiduciary duties as RIAs, and are therefore bound to act in a client’s best interests. This isn’t the case and we believe the SEC needs to give investors clarity about the duties owed by those using the ‘adviser’ or ‘advisor’ titles,” said CFA Institute president and CEO Paul Smith today in reference to the letter CFA Institute delivered to Securities and Exchange Commission (SEC) on the matter.

The letter represents a formal response to Chairman Jay Clayton’s recent solicitation for information on how to address and clarify the standards of care for brokers and registered investment advisers.

CFA Institute made three primary suggestions for addressing investor confusion about who is providing them with investment advice and whose interests those advisers represent.

1. First, it calls upon the SEC to clarify what constitutes personalized investment advice that requires registration as an RIA. The Investment Advisers Act (the “Act”) currently describes what is impersonal investment advice. CFA Institute pointed out that brokers are routinely providing personalized investment advice, which is intended to influence the investment decisions and customize the actions of specific individuals or accounts.
2. Second, CFA Institute proposes to reduce the investor confusion described in the Rand Report, which the SEC commissioned , by providing guidance on the application of the Act’s Section 202(a)(11)(C) such that use of the title, “financial advisor,” implies that the investment advice is personal and not incidental to the work of a broker. By addressing this confusion through the Investment Advisers Act, the SEC could avoid the need for new and complicated rulemaking.
3. The third suggestion is to require brokers to clearly, prominently, and in consistent form, disclose to their clients that brokers are agents of the brokerage firms that employ them.  It should further state that the brokers do not legally represent the interests of the retail customer/account holder.

“As noted in yesterday’s Wall Street Journal article, too many investors are confused by the ’financial advisor’ title that brokers have used since the 1990s. Clear guidance about use of the title, ‘investment adviser’ and titles similar to it, together with direction on what constitutes personalized and impersonal advice from the SEC, will provide significant investor clarity without introducing new regulations or laws. These proposals seek to let the advisory industry do what it does and the brokerage industry likewise play its role without complexity, added compliance costs or reduced services for investors,” said Smith. “Importantly, it is a useful precursor to the SEC and DOL sorting out an effective uniform fiduciary duty for retirement and non-retirement accounts.”