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Kitces’ XY Planning Urges SEC to Block Brokers From Offering Financial Plans

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What You Need to Know

  • Financial planning services are beyond the scope of
  • The second petition asks the SEC to revisit which titles an advisor can use without being held to a fiduciary standard.
  • Reg BI still has not fundamentally addressed the issue of when someone stops being a broker and begins to become an RIA.

XY Planning Network is urging the Securities and Exchange Commission to complete a rule it proposed in 2007 to restrict brokers from marketing themselves as financial planners and to modernize a rule on titles.

In petitions filed Monday morning with the SEC, XYPN is asking the agency to, according to executive chairman and co-founder Michael Kitces:

  • Formally complete its 2007 proposed rule to restrict brokers from marketing themselves as financial planners, offering financial planning services, or delivering a financial plan, as doing so amounts to advice that clearly isn’t “solely incidental” to brokerage services;
  • Issue rules modernizing interpretation of Section 208(c) of the Advisers Act and clarifying what titles and other marketing may constitute “representing as an investment counsel,” thereby triggering additional title restrictions under the Act.

“The entire genesis of the Investment Advisers Act of 1940 was to create a clear separation between the ‘tipsters and touts’ that sold brokerage products, and the bona fide investment adviser,” Kitces said. “Today, we call upon the SEC to modernize this important provision of the Investment Advisers Act, and clarify that firms providing investment counsel today — even by a different name — are still subject to the limitations of Section 208(c).”

During a call with reporters, Kitces explained that the first petition addresses “solely incidental” advice, and asks the SEC “to recognize that if you’re giving financial planning advice, it can’t be solely incidental to a brokerage sale. It’s advice and it should be regulated as such, which means being an RIA fiduciary.”

The second petition on titles “essentially comes down to, if you market that you’re offering investment counsel services as a financial advisor or financial planner, you should have to be one, which again would entail RIA status and the fiduciary rules that apply to it,” Kitces said.

The petitions, he added, are “not asking the SEC implement a uniform fiduciary standard, which has been the primary focus of a lot of fiduciary advocacy over the past decade or so.”

XYPN’s “focus here is really quite different, which is to say: when brokers provide brokerage services, true brokerage services — buying and selling stocks and bonds, facilitating capital formation, issuing securities in the public markets — the original function of broker-dealer, we think there’s absolutely nothing wrong with that,” Kitces said. “There’s no reason to subject that to a fiduciary rule.”

However, he continued, “brokers should only be brokers and should hold themselves [out as] brokers and not use advisor titles and offer financial planning; if they do those things, they’re saying they are advisors. If they’re saying they’re advisors they should actually have to be advisors, which means they have to be RIAs under a fiduciary standard.”

Kitces noted that XYPN believes that the SEC’s Regulation Best Interest “did an excellent job lifting the standard of care for brokers who are delivering brokerage services.”

The focus of XYPN’s petitions for rulemakings “is not on changing the standard of care for brokers,” Kitces explained, “but instead clarifying when a broker ceases to act in the capacity of a brokerage salesperson and begins to operate in the capacity of a bona fide advisor. This requires clarifying the dividing line between professional advice subject to a fiduciary standard and sales advice attached to product transactions by a broker.”

Reg BI, however, Kitces added, “still has not fundamentally addressed the issue of when someone stops being a broker subject to Regulation Best Interest and begins to become an RIA subject to a fiduciary duty.”

Pictured: XY Planning Network co-founder Michael Kitces