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SEC Clarifies Use of ‘Advisor,’ ‘Adviser’ by Dually Registered Firms

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A broker-dealer that is also a registered investment advisor can use or distribute marketing materials that describe the firm’s financial professionals as “financial advisors,” “advisers” or “advisors,” the Securities and Exchange Commission stated in recently updated frequently asked questions guidance on Regulation Best Interest.

The agency clarified on Aug. 4 five questions relating to dually registered firms’ use of the term “advisor” and “adviser” regarding Reg BI compliance.

The first question asked: Can my firm’s financial professionals, including those who are not also supervised persons of an investment adviser, use or distribute firm materials that generally describe our firm’s financial professionals as “financial advisors” or by another general title using the term “adviser” or “advisor” (e.g., “Our financial advisors…” or “Talk to your financial advisor about…”)?

The SEC’s response:

Generally, yes.

When a dually registered broker-dealer uses or distributes firm material, “such as marketing material that generally refers to financial professionals using the terms ‘advisers’ or ‘advisors,’ such language, by itself, would not presumptively violate the capacity disclosure requirement” under Reg BI’s Disclosure Obligation. This would be the case whether or not the financial professional using the firm’s materials is also a supervised person of an investment adviser.

However, the FAQ highlights that in order to satisfy the Reg BI disclosure obligation when making a recommendation, broker-dealers “must make full and fair disclosure of all material facts relating to the scope and terms of the relationship with a retail customer, including the capacity in which they are acting with respect to the recommendation. This obligation applies to both the broker-dealer and to associated persons of the broker-dealer.”

Additional disclosures to identify capacity “may be necessary for the firm and the financial professional using such materials when making a recommendation,” the SEC said.

For example, “in a situation where such firm materials are used by a financial professional who is not also a supervised person of an investment adviser, additional disclosures would be necessary to identify the capacity in which the financial professional is acting when making the recommendation,” the SEC explained.

Similarly, a financial professional “who is not also a supervised person of an investment adviser would not be permitted to use his or her own materials that refer to himself or herself as an ‘adviser’ or ‘advisor’ notwithstanding his or her firm’s registration status.”

The FAQ reiterates that a broker-dealer that’s not also a registered investment advisor may not use the terms “adviser” or “advisor” in “doing business as” marketing or in marketing the firm’s name.

However, a broker-dealer — whether standalone or dually registered as an investment advisor — can use or distribute issuer-prepared marketing and disclosure materials, such as a prospectus, that describe financial professionals collectively as “financial advisors,” “adviser” or “advisor,” the SEC said.

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