Say you just hired a writer to pen an investment book or article called “Hitting Retirement Gold,” and are planning to slap your own name on it. After all, there is an entire cottage industry of ghostwriters that pen such investment pamphlets, articles and books. Well, if you’ve already written the writer a check, you might want to stop payment. FINRA, the broker/dealer industry’s self-regulatory group, published a regulatory Notice (08-27) in early May warning member firms that such things violate NASD Rule 2210 on misleading communications with the public.
The Notice is part of an ongoing effort by state and federal regulators to crack down on bogus marketing that financial advisors use to inflate their expertise, from senior designations to ghostwritten investment materials. Are you who your clients think you are? If not, watch out.
FINRA warns member firms in its Notice that they are on the supervisory hook for such ghostwritten materials, including hardcover books, pamphlets and articles bearing the byline of a rep. The list of outlawed stuff also includes interviews where a rep’s answers have been scripted by someone else, and handouts that make it look like a magazine story has been written by or about a rep, when, in fact, it has been produced at the rep’s request.
Separately, more states are getting tough on senior designations that don’t actually require an advisor to learn anything of substance about his intended clients. Colorado, Maryland, New Hampshire, North Dakota, Virginia and Washington are set to adopt model regulations governing senior designations that were created by NASAA (the North American Securities Administrators Association) last month. The regulations—based on rules adopted in Massachusetts last year—basically prohibit the use of certifications and designations conferred by any organization that is primarily sales or marketing oriented, and lacks “reasonable standards or procedures for assuring the competency of its designees or certificants."
Senior designations have been under fire for some time, as regulators attempt to curtail cases of investment fraud against seniors—the often-easy targets of money-hungry advisors with flimsy credentials that suggest great retirement expertise. In fact, in 2006, some 44 percent of all investor complaints came from seniors, and 23 percent of all enforcement actions involved the financial exploitation of seniors, according to the most recent estimates from NASAA. Of course, not all of these cases involved phony credentials, and there are some senior designations that do require the completion of valuable coursework. And that is the point: Regulators want to weed out the ones that don’t.
“It’s up to each state, whether they need to adopt the rule through legislation or through a rulemaking process,” says Bob Webster, communications director of NASAA. “Obviously we would encourage our members to see that the model rule is adopted as soon as possible, but it really is on a state-by-state timetable,” he says. Nebraska, for example, has taken a different route, drawing up a list of all financial advisory designations approved in the state.
In the meantime, the Senate introduced a bill called the Senior Investor Protection Act of 2008 a few months ago, which would provide funds for states to adopt a uniform standard for accrediting "senior designations." But few industry observers expect this legislation to pass in 2008.
The adoption of these rules is good for institutions that offer the real thing. “What the model regulation is trying to do is that if you are in this business to promote education you have one set of ways that you run your operation,” says Keith Hickerson, vice president of marketing and student success for The American College, which offers the chartered advisor for senior living designation. “If you’re in the business to make fast money by selling the designation then this is going to hurt your profit margin, and if you’re in it for that reason you should not be in it at all.”
Close to 2,000 financial advisors hold the chartered advisor for senior living designation, which requires the equivalent of 15 semester credit hours at the college level, and covers subjects such as investments, estate planning, health-care financing and long-term care for seniors, and takes about 18 months to achieve. The institution also requires 15 hours of continuing education every two years, and can revoke the license if an advisor makes ethical lapses.