SEC Spells out Use of the Terms “Advisor” and “Adviser” for Dual Registrants
By: Chuck Lowenstein
September 11, 2020
An individual who represents a FINRA member firm and has a Series 7 registration is legally known as a General Securities Registered Representative. That is quite a mouthful when making an “elevator pitch,” so various terms have been employed to describe the position. Depending on what decade you became registered, you might have been a stockbroker, an account executive, or, the most recent iteration, a financial advisor (FA).
That is about to change for many in the industry.
Many studies indicated that the general investing public was unaware of the differences between a broker-dealer and an investment adviser. Referring to oneself as a financial advisor added to the confusion. Given that the titles adviser and advisor are closely related to the statutory term “investment adviser,” their use by broker-dealers can have the effect of erroneously conveying to investors that they are regulated as investment advisers and have the business model, including the services and fee structures, of an investment adviser. Such potential effect undermines the objective of the capacity disclosure requirement under Regulation Best Interest to enable a retail customer to more easily identify and understand their relationship.
The disclosure requirement of the newly effective (June 30, 2020) Regulation BI attempts to eliminate that issue. In the simplest terms, the term adviser or advisor cannot be used if the member firm’s only registration is that of a broker-dealer and the individual’s registration is only as a registered representative. For those firms (and individuals) who are dual registrants, the term may be used even when the account is only a “BD” account and not solely for
advisory accounts.
The SEC specifically states: “We would presume the use of the terms adviser and advisor by (1) a broker-dealer that is not also registered as an investment adviser or (2) a financial professional that is not also a supervised person of an investment adviser to be a violation of the Disclosure Obligation under Regulation Best Interest.”
As with all rules, there are exceptions, and we recommend you check with legal counsel to see if any of them apply to your personal situation.
That is about to change for many in the industry.
Many studies indicated that the general investing public was unaware of the differences between a broker-dealer and an investment adviser. Referring to oneself as a financial advisor added to the confusion. Given that the titles adviser and advisor are closely related to the statutory term “investment adviser,” their use by broker-dealers can have the effect of erroneously conveying to investors that they are regulated as investment advisers and have the business model, including the services and fee structures, of an investment adviser. Such potential effect undermines the objective of the capacity disclosure requirement under Regulation Best Interest to enable a retail customer to more easily identify and understand their relationship.
The disclosure requirement of the newly effective (June 30, 2020) Regulation BI attempts to eliminate that issue. In the simplest terms, the term adviser or advisor cannot be used if the member firm’s only registration is that of a broker-dealer and the individual’s registration is only as a registered representative. For those firms (and individuals) who are dual registrants, the term may be used even when the account is only a “BD” account and not solely for
advisory accounts.
The SEC specifically states: “We would presume the use of the terms adviser and advisor by (1) a broker-dealer that is not also registered as an investment adviser or (2) a financial professional that is not also a supervised person of an investment adviser to be a violation of the Disclosure Obligation under Regulation Best Interest.”
As with all rules, there are exceptions, and we recommend you check with legal counsel to see if any of them apply to your personal situation.
