The Great Re-Sell

As everyone knows, the SEC isn't going to fight the U.S. Court of Appeals vacating the broker/dealer exemption, allowing reps to act like registered investment advisors (fiduciaries), provided certain stipulations and etc.

As everyone knows, the SEC isn't going to fight the U.S. Court of Appeals vacating the broker/dealer exemption, allowing reps to act like registered investment advisors (fiduciaries), provided certain stipulations and etc. I'll spare you the details of the ruling, which can be found in our lead news report beginning on page 15. But what's interesting to consider is how registered reps will re-position themselves with clients who have fee-based brokerage accounts. How are you going to tell clients affected by the ruling that, well, gosh, the government didn't much like the prior arrangement you were offering them? No doubt your firm will help you with a script, but we do not envy you. As one former branch manager we know put it, it'll be like having to “resell” the client and prove you're worthy of being his advisor all over again.

Probably the best thing to do is to become dually registered by studying for and passing the Series 66 exam, which allows you to offer comprehensive financial advice (i.e. act as a fiduciary). You can then work for the registered investment advisory (RIA) side of the house as an investment advisor representative (IAR) — and in effect become what your card says you are — a financial advisor and not a product salesman (which is basically what the law says you are if you hold only a Series 7). After all, the brokerage industry has morphed into what's called the “financial services” industry in the 70-odd years since the Securities Exchange Act of 1934 was passed (establishing registered reps) and in the 60-plus years since the Investment Advisers Act of 1940 was enacted (creating investment advisors).

The Absurdity of Client Communications Rules

When you get in touch with those wrap-account brokerage clients, be careful what you say. If you plan to ad lib, you might want to pick up the phone or invite them to your office, as you'll see from our cover story on page 30. Our readers tell us that talking on the phone is about the only time they can ever speak frankly with clients. One advisor, who has the legal authority to buy and sell securities on his clients' behalf, says that, even so, he can't write them an email explaining why. In this litigious age, corporate compliance departments heavily scrutinize all written communiqués. Another rep we spoke to simply writes notes on a legal pad — thinking he'll somehow circumvent the rules this way — and then drops the pages in an envelope in the firm's mail bin. Yet another advisor we know answers all emailed queries from clients with a phone call. They all wonder: Does this sneaky, cat-and-mouse game serve the client?

(We thank you for your support. Drop us a line with your comments at: 249 W. 17th St., New York, N.Y. 10011-5300. Or email us at [email protected]. Publisher Rich Santos can be reached at [email protected].)

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