Which is the correct spelling: Advisor or Adviser?  As it turns out, the Securities and Exchange Commission (SEC) doesn’t care as long as the “advisor” doesn’t spell it b-r-o-k-e-r.

Regulation Best Interest restricts the use of the word Advisor

The SEC recently issued a ruling known as Regulation Best Interest to reduce investors’ confusion. The regulation restricts the use of the term “advisor,” regardless of its spelling, to companies who operate as Registered Investment Advisors (RIAs). Brokers and others who manage personal finances who are not RIAs have been asked to remove the term “advisor” in their marketing. The ruling goes into effect on June 30, 2020.

According to a CNBC article (“Your financial advisor may not actually be an ‘advisor’”), a joint study conducted by the Rand Corporation and the SEC’s Office of the Investor Advocate estimates that more than 40% of investors think “broker” and “advisor” are interchangeable titles and believe both are required to act in their clients’ best interests.

So just what is the big deal here? What’s the distinction between a broker and an advisor?  Simply put, it is the difference between selling and advising.

What does a Broker do?

A broker performs transactions on behalf of a client and receives a sales commission for facilitating the transaction.  Brokers may also personally benefit from commissions paid by companies to incent the distribution of a specific product. These products could include annuities, certain share classes of mutual funds, long term care, and life insurance. The only requirement is that the product must meet the low bar of being “suitable” for the client. It could be said there is a conflict of interest innate to this arrangement.

What does a Registered Investment Advisor do?

Conversely, RIAs are paid a fee for the advice they provide rather than sales commission on products sold.  Financial advisors are held to a higher standard than “suitable”: they work in “fiduciary” capacity, which means they must act in the client’s best interest when providing advice or recommendations.  In a fiduciary capacity, advisors typically have fewer conflicts of interest embedded in their recommendations. Earning compensation by providing sound advice mitigates the potential conflict of interest inherent to those living on commissions from product sales.

What happened to the DOL Fiduciary Rule?

Before Regulation Best Interest, in an earlier attempt to contain the conflict of interest rampant in the financial industry, the Department of Labor (DOL) approved a fiduciary rule that would require anyone offering retirement investment guidance to operate strictly in the clients’ best interest.  However, the implementation of the so-called “fiduciary rule” suffered a series of delays and was eventually vacated by a March 2018 circuit court ruling.

At that time, the DOL laid out a picture of America’s advice crisis in a widely distributed Fact Sheet that highlighted the flaws with the current system, much of which is relevant today:

While many advisors do act in their customers’ best interest, not everyone is legally obligated to do so and some do not. Many investment professionals, consultants, brokers, insurance agents and other advisers operate within compensation structures that are misaligned with their customers’ interests and often create strong incentives to steer customers into particular investment products. These conflicts of interest do not always have to be disclosed and advisers have limited liability under federal pension law for any harm resulting from the advice they provide to plan sponsors and retirement investors. (Fact Sheet, United States Department of Labor, April 2012)

Why does Fiduciary matter?

To the advisors at SYM, the fact that so many practitioners resisted the obligation to put client interests first speaks volumes about the size of this problem throughout the industry. While regulatory agencies continue to address the challenge, it is critical that clients understand their professional relationships. Fiduciary duty is the strictest duty of care within the U.S. legal system.

We believe strongly in maintaining a client-first, transparent partnership with our clients. We operate in this manner because we believe it is the right way to conduct business. We do this by pursuing a combination of investments designed to provide the optimal combination of after-fee, after expense, after-tax returns in the context of a portfolio’s risk profile and your financial situation.

SYM’s commitment to ethical behavior incorporates fiduciary duty and expands it. Every employee is required to abide by a firm-wide code of ethics overlay designed with the goal to shield clients from even subtle conflicts of interest. At the individual level, many SYM employees are also bound to additional codes of ethics as articulated by the CFP® (Certified Financial Planner®) Board, the CFA® (Chartered Financial Analyst®) Institute, the Indiana CPA (Certified Public Accountant) Society, the AIF® (Accredited Investment Fiduciary®) board, the FPQPTM (Financial Paraplanner Qualified ProfessionalTM) board, and the Indiana State Bar Association. It’s in our DNA.

If you or someone you know could benefit from a fiduciary relationship with a Registered Investment Advisor, we are here to serve. Visit us at sym.com and reach out to start a no-cost, no-obligation conversation.

 

 

DISCLOSURES: The Accredited Investment Fiduciary® (AIF®) designation is granted by fi360, formerly known as the Center for Fiduciary Studies. Those who earn the AIF® mark, successfully complete a specialized program on investment fiduciary standards of care, pass a comprehensive examination and attest to a Code of Ethics.
Certified Financial PlannersTM (CFP®) are licensed by the CFP® Board to use the CFP® mark. CFP® certification requirements include: Bachelor’s degree from an accredited college or university, completion of the financial planning education requirements set by the CFP® Board (www.cfp.net), successful completion of the CFP® Certification Exam, comprised of two three-hour sessions, experience requirement: 6,000 hours of professional experience related to the financial planning process, or 4,000 hours of Apprenticeship experience that meets additional requirements, successfully pass the Candidate Fitness Standards and background check, agree annually to be bound by CFP® Board’s Standards of Professional Conduct, and complete 30 hours of continuing education every two years, including two hours on the Code of Ethics and Standards of Professional Conduct.
Chartered Financial Analyst® (CFA®) are licensed by the CFA® Institute to use the CFA® mark. CFA® certification requirements: Hold a bachelor’s degree from an accredited institution or have equivalent education or work experience, successful completion of all three exam levels of the CFA® Program, have 48 months of acceptable professional work experience in the investment decision-making process, fulfill society requirements, which vary by society. Unless you are upgrading from affiliate membership, all societies require two sponsor statements as part of each application; these are submitted online by your sponsors.
The Certified Public Accountant (CPA) is the statutory title of qualified public accountants in the US who have passed the Uniform Certified Public Accountant Examination and have met additional state education and experience requirements. Certification is administered by each state.
The Financial Paraplanner Qualified ProfessionalTM (FPQPTM) is a designation covering the financial planning process, the five disciplines of financial planning, general financial planning concepts and terminology. Individuals who hold this designation have completed the 10-module course of study, and then successfully passed an exam. Designees must adhere to the College’s Standards of Professional Conduct and complete sixteen hours of continuing education every two years.
The opinions expressed herein are those of SYM Financial Corporation (“SYM”) and are subject to change without notice. This material is not financial advice or an offer to sell any product. SYM reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. This is not a recommendation to buy or sell a particular security. SYM is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about SYM including our investment strategies, fees and objectives can be found in our ADV Part 2, which is available upon request. SYM-20-67.