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February 16, 2018 at 05:01 AM
Advisor. Broker. Wealth Manager. Financial Advisor. Investment Advisor. Financial Consultant. Financial Planner. Savings Coach. Budget Doctor. Wealth Architect. Money Ninja. Cash Llama.
The regulatory approach to financial professional titles to date has pretty much been “Pick one and have at it.”
Hyperbole aside, I’m far from the first person to observe that the various titles donned by financial services professionals are as clear as mud — especially from the perspective of the investing public. But there is at least one particular title that has been legitimized as a profession, supported by an official board of standards, and subject to specific regulatory guidance: financial planner.
The term “financial planner” has not been defined by the Securities and Exchange Commission, and it does not make a single appearance in the Investment Advisers Act of 1940. Even amongst industry practitioners, what constitutes “financial planning” is far from universally accepted.
But the CFP Board’s Standards of Professional Conduct defines financial planning as “the process of determining whether and how an individual can meet life goals through the proper management of financial resources. Financial planning integrates the financial planning process with the financial planning subject areas.” It goes on to explain that these financial planning subject areas generally include, but are not limited to: (1) Financial statement preparation and analysis (including cash flow analysis/planning and budgeting), (2) Insurance planning and risk management, (3) Employee benefits planning, (4) Investment planning, (5) Income tax planning, (6) Retirement planning, and (7) Estate planning.
But which of these subject areas and activities trigger the need to register as an investment adviser? Is an individual that limits his services to client budgeting and cash flow analysis, for example, subject to the same regulatory regime as another individual that instead focuses on investment planning?
Both federal and state securities regulators have wrestled with the concept of financial planning for decades. On the federal level and since at least the 1970s, the SEC has issued various no-action letters, releases, administrative actions, and even a subsequently vacated rulemaking in an attempt to fit the financial planning community into a regulatory box. The North American Securities Administrators Association (NASAA) has been a bit more direct, and has explicitly incorporated the concept of a financial planner into its Uniform Securities Act (which many states have adopted wholesale or in part).
The seminal no-action letter out of the SEC — issued jointly with NASAA — is Investment Advisers Act Release No. 1092: Applicability of the Investment Advisers Act to Financial Planners, Pension Consultants, and Other Persons Who Provide Investment Advisory Services as a Component of Other Financial Services. As if its title is not self-explanatory enough, the release itself states that its goal is to “provide uniform interpretations about the applicability of federal and state adviser laws to the activities of financial planners and other persons.”
To determine if a financial planner is subject to federal or state investment adviser laws, we must first confirm our understanding of the term “investment adviser.” Section 202(a)(11) of the Investment Advisers Act of 1940 does just that, and defines “investment adviser” to mean:
