The US Securities and Exchange Commission is proposing a rule that would keep registered representatives and brokers from also referring to themselves as investment advisors. In almost 1,000 pages of new proposals, the regulator articulated that it wants brokerage firms to make sure that the investing public knows that while brokers can sell investment products they are not trusted fiduciary advisors—nor is it their role to continue to offer advice after a sale has been made. Under the proposed rule, brokers would no longer be allowed to call themselves a trusted “advisor” or “adviser.” They can, however, take steps to become a registered investment adviser.
Addressing the proposed package, SEC Chairman Jay Clayton said that “investor confusion” about what differentiates broker-dealers from investment advisers is what prompted these latest initiatives. While both can give retail investors advice regarding possible investments, the two have different kinds of relationships with them. Clayton also noted that retail investors can suffer harm if they don’t know that certain conflicts of interest may be involved when working with either broker-dealers or investment advisers. Investors also may be giving more authority over their finances to a broker or investment adviser than they should.
In a 4-1 vote this week, the SEC’s ”Regulation Best Interests” measures for brokers was moved forward. Under the new measures, brokers would be obligated to place clients’ best interests before their own when it comes to recommending investment strategies or products. Brokers would have to set up and enforce written procedures and polices that would identify, expose, get rid of, or avoid conflicts of interest that might involve a financial incentive. While the existing broker standard requires that they recommend investment products that are suitable to each client, brokers are still allowed to endorse the products that gives them the greater financial payday.
Not everyone is a fan of the SEC’s proposed package. Massachusetts Secretary of the Commonwealth William Galvin called it a “watered-down” standard that only enforces the current status-quo. Galvin believes that brokers should also have to uphold a fiduciary standard like the one that investment advisers must follow when working with investors. He also noted that the proposed rules don’t bar “conflicted actions.”
Also part of the SEC’s proposed package is a short-form disclosure document that would clearly articulate the relationships between retail investors and their brokers. Meantime, the Commission intends to become much more involved in overseeing broker sales practices.
In addition to its proposed package, the regulator is working to promote investor awareness, especially in April, which is national Financial Capability Month. The initiatives seeks to educate investors about investing, saving, and retirement plans, as well as teach them how to double check an investment or a financial professional to make sure that either is legitimate. The SEC also wants investors to know how to identify signs of an investment fraud.
That said, even with the proper education and awareness, broker fraud can still happen and this can can cost investors significantly. In such instances, it is important that you have an experienced broker fraud lawyer representing you and advocating on your behalf to help you try to get your money back. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.
SEC Proposes to Enhance Protections and Preserve Choice for Retail Investors in Their Relationships With Investment Professionals, SEC.gov, April 18, 2018
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Investment Adviser is Accused of “Ponzi-Like” Scam Involving 50 Investors, Including Friends and Family, Stockbroker Fraud Blog, April 18, 2018
Massachusetts Regulator Rips SEC’s Best Interest Proposals For Brokers, Financial Adviser, April 20, 2018
Ex-Wells Fargo Broker Barred for Alleged $180K Elder Financial Fraud, Stockbroker Fraud Blog, February 26, 2018