The National Associate of Personal Financial Advisors (NAPFA) is trying to educate Jay Clayton, the new Securities and Exchange Commission (SEC) Chairman, on the differences between advisors and brokers. You would think that the SEC would understand the differences, but they do not. The new SEC rule abandoned the fiduciary standard for brokers. And the SEC is now ten years in contempt of a court order to enforce the law.
I found one of NAPFA’s suggested talking points for Registered Investment Advisors (RIAs) wonderfully presented:
As an RIA, I render fiduciary advice in intimate relationships of two; brokers can only offer incidental advice in sales relationships of three.
Three sets of interests or just yours
Traditionally, a broker represents the seller and his duty is to the seller. He brokers the sales deal with a buyer and they put the lightest of requirements on his responsibility to the buyer. He can’t misrepresent the product. He can’t sell a knowingly inappropriate product to a consumer. He has to disclose his relationship with the seller. And he has to have the buyer’s approval to make the sale.
Even if the seller is not physically present in the room, a broker has a responsibility to represent their interests. Meeting with a broker is a “sales relationship of three” people.
Financial planning is difficult enough just prioritizing your own interests. Who would want an advisor who is looking out for the interests of some third party who isn’t even in the room?
Incidental or Intentional
Additionally, the exemption that excludes brokers and dealers from the Securities and Exchange Act of 1934 states that they are excluded only if the advice they provide is “solely incidental to the conduct of its business as broker or dealer.” If the advice is not “solely incidental,” a broker-dealer is subject to the Advisers Act regardless of the form of compensation it receives. To qualify for the exemption, broker-dealers must only provide incidental advice or none at all.
I looked up synonyms of incidental and found: accidental, casual, chance, inadvertent, unintended, unintentional, unplanned, unpremeditated, and unwitting. Who would ever want unplanned and unintentional financial advice?
We are proud to be NAPFA members at Marotta Wealth Management.
Photo by Joshua Ness on Unsplash