Reg BI limits brokers' use of title 'adviser' or 'advisor'

If brokers are not dually registered as advisers but use the term, they could run into trouble under new rule

Jun 10, 2019 @ 4:39 pm

By Mark Schoeff Jr.

Brokers who are only brokers will have to be less cavalier in describing themselves as financial advisers, thanks to an advice reform package approved last week by the Securities and Exchange Commission.

Under Regulation Best Interest, brokers who are not dually registered as investment advisers cannot use the term "adviser" or "advisor" in their title. In the original proposal, restricting title use was in a separate rule.

The prohibition is now part of the disclosure obligation of Reg BI, which requires brokers to reveal to customers all material facts relating to the scope and terms of the relationship, including the capacity in which they're acting: as a broker or an adviser.

"We believe that in most cases, broker-dealers and their financial professionals cannot comply with the capacity disclosure requirement by disclosing that they are a broker-dealer while calling themselves an "adviser" or "advisor," Reg BI states on page 156. The title reform discussion runs from page 149 through 163.

Brokers increasingly are marketing themselves as financial advisers who can help customers with a range of wealth management needs beyond securities transactions. But they have avoided registering as investment advisers unless they put their clients into advisory accounts.

Reg BI states that the Financial Industry Regulatory Authority Inc. will review its rules for broker marketing communications in light of the rule.

Reg BI could force a major mindset change by brokers and registered representatives, according to Lawrence Stadulis, partner at Stradley Ronon Stevens & Young.

"Folks who are only authorized to sell securities as a broker can't use the term adviser because they would violate [Reg BI]," Mr. Stadulis said.

But James Allen, head of capital markets policy Americas for the CFA Institute, said Reg BI allows brokers to wiggle out of the title strictures and claim they are advisers. The organization filed a comment letter last year advocating for tougher title reform.

"We're certainly disappointed," Mr. Allen said.

The rule "once again puts significant onus on enforcement and interpretation," he said. "There seems to be a rebuttable presumption [that a broker is not an adviser]. We wanted it to be clear: You're either an investment adviser registered as an investment adviser or you're a broker and call yourself a broker."

Reg BI allows brokers who are dually registered as advisers to continue to use the adviser title.

"We believe it would be consistent for dual-registrants and dually registered financial professionals to use these terms as they would be accurately describing their registration status as an investment adviser," Reg BI states in a footnote on page 158.

A registered representative of a dually registered broker-dealer who is not also "a supervised person of an investment adviser" would be prohibited from using the title "adviser."

Of the 630,132 registered representatives in 2017, 286,799 were dually registered, according to Finra.

Under Reg BI, brokers and advisers would continue to be regulated separately. Reg BI requires brokers not to put their interests ahead of their customers' interests. Investment advisers would continue to adhere to a fiduciary duty in client relationships.


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