The North American Securities Administrators Association has proposed amendments to its model rule, aiming in part to prohibit the use of “advisor” or “adviser” titles by brokers who lack the corresponding investment adviser licensure.
The proposed changes to the Dishonest or Unethical Business Practices of Broker-Dealers and Agents rule, which it opened for public comment from November 4 through December 19, are part of NASAA's ongoing response to evolving industry standards and the SEC’s 2019 Regulation Best Interest rule.
NASAA first floated the changes to its Business Practices Rule in a 90-day public consultation that began in September 2023. That round included a revision that was "intended to define, clarify, or simply emphasize an obligation or component of Reg BI," which the regulatory collective dropped after reviewing stakeholders' responses.
In its latest proposal and request for comment, NASAA noted that the use of "advisor" or "adviser" titles by unlicensed brokers can create confusion for investors by suggesting a fiduciary duty that isn’t legally required in all broker-client relationships.
“Using the title in that manner blurs the lines between these two business models and gives investors a false impression regarding the capacity in which a firm or agent is operating,” NASAA stated in its proposal. According to the association, while some firms have reduced misleading title usage following Reg BI’s adoption, confusion remains prevalent in cases where brokers use these titles without the licensure required of investment advisers.
It cited a report it published in 2021, where it found seven percent of Reg BI firms using the term “adviser” without proper registration.
"NASAA members have found more recently that firms continue to permit the use of the term “adviser” in instances where the firm and/or its agents are not licensed or registered as an investment adviser or investment adviser representative," the proposal said.
Recognizing that certain jurisdictions allow the use of "advisor" or "adviser" titles without licensure under specific circumstances, NASAA said it would allow the use of those titles when it's "otherwise permitted by the law."
In addition to limiting title use, the proposed amendments also introduce a best interest standard for brokers when making recommendations to retail clients, mirroring Reg BI’s focus on placing client interests above financial incentives for brokers. That revision, if enacted, would insert a provision requiring broker-dealers to prioritize a retail customer's investment profile, potential risks, rewards, and costs to the investor when recommending an investment strategy or security.
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