The Securities and Exchange Commission’s three-pronged advice standards proposal has thrown the debate over titles — specifically “adviser” versus “advisor” and who should be allowed to use the terms — back into the spotlight.
Advisor Ken Fisher of Fisher Investments put renewed vigor into the debate by opining in his comment letter to the SEC that brokers should be banned from using either label, and that advisor with an “o” was introduced by brokers “as a way to get around the original ban on using the word ‘adviser.’”
Fisher told the SEC that the financial advice industry needs “disharmonization” — “clear, bright, red lines so investors know exactly what they are getting” when dealing with a financial professional, and that “advisers vs. advisors language is a start.”
I covered Fisher’s comments to the SEC in an early August article for ThinkAdvisor.com, which included separate insights from Fisher. That article prompted a couple emails to land in my inbox.
While other comments concerning titles have flooded into the agency (comment period expired Aug. 7), I decided to poll advisors, too, regarding their stance on the SEC’s plan to restrict brokers’ use of “adviser” and “advisor.”
I asked: “Is brokers’ use of either title really a problem?” As well as, “Does using adviser vs. advisor, even among advisors, really matter?”
Advisors were quick to weigh in with their thoughts. We’ll get to those comments shortly.
The SEC’s Plan The SEC’s proposal states that to address “investor confusion based on titles,” it is proposing to “restrict the use of the terms ‘adviser’ and ‘advisor’ by broker-dealers and their associated financial professionals.”
The agency stated: “We agree that it is important to ensure that retail investors receive the information they need to understand the services, fees, conflicts, and disciplinary history of firms and financial professionals they are considering. Likewise, we believe that we should reduce the risk that retail investors could be confused or misled about the financial services they will receive as a result of the titles that firms and financial professionals use, and mitigate potential harm to investors as a result of that confusion. We also believe the information should be reasonably concise.”
Fisher doesn’t think the SEC goes far enough, saying it should “rule that only investment advisers not also registered as brokers are permitted to call themselves ‘advisers.’” Brokers should be required to call themselves “brokers,” Fisher argued, while “insurance producers, financial planners, and anyone else who may want to give investment advice, should likewise be prohibited from referring to themselves as ‘advisers.’”
“Adviser” won’t be eliminated, because that’s how it’s spelled in the Investment Advisers Act, Fisher told me in separate comments. “‘Advisor’ and ‘adviser’ is an obvious confusion.” Thus, Fisher says he’s is partial to the terms: broker, adviser and broker-adviser (for dual-registrants). “But other realms could be created,” he said. “The point is simplicity and clarity.” He added, “As it is, few investors as a percent of all investors have a clue what and who they’re dealing with in a registration and legal sense. Sticking close to the letter of the law isn’t a bad idea.”
But Barbara Roper, director of investor protection for the Consumer Federation of America, believes the SEC’s plan could actually increase investor confusion.
The Commission suggests, Roper wrote in her comment letter, that restricting brokers’ use of the terms “will help retail investors to determine ‘whether the firm is a registered investment adviser or registered broker-dealer, and whether the individual providing services is associated with one or the other (or both), so that retail investors can make an informed selection of their financial professional, and then appropriately monitor their financial professional’s conduct.’”
However, the SEC’s proposed approach, Roper contends, “is far too narrow to achieve its intended result … there is simply no basis for the Commission to conclude that its proposal will provide any investor benefits that would offset the cost to affected firms of updating their business cards and websites to reflect the change in title.” On the contrary, she continued, “there is strong reason to believe the proposal would increase, rather than reduce, investor confusion.”