Regulation and Financial Planning – What’s Next?

The issue of financial regulation has taken center stage over the past few weeks. This was inevitable given the circumstances surrounding the recession: a bursting bubble in the real estate market exacerbated by rampant greed and a total lack of transparency on Wall Street. If history has taught us anything, it’s that capitalism thinks and acts much faster than regulation. After the damage is already done, regulators scramble to assign blame and over-regulate to compensate for their own glaring errors. My article today pertains to my end of the industry: financial planning and investment advice. While advisors are typically regulated by either FINRA and/or the SEC, there is a huge amount of confusion about the standards advisors need to follow when it comes to selling products and offering investment advice. There is also confusion about ‘who is’ an advisor because there is no state-issued designation for financial planners the way there is for accountants and financial analysts. The closest thing we have is the Certified Financial Planner (CFP) which is controversial among industry professionals for a variety of reasons ranging from the ethical requirements to the fees. As our field grows continues be in great demand, it’s important that regulators maintain some clear-cut rules and regulations for financial professionals in the business of giving advice.


First, the issue of “suitability” vs. “fiduciary” standards has been lingering for a while. This pertains to both financial planners and any other industry professional with a license to give advice. As it stands, investment advisors have a license which stockbrokers don’t have, and are held to a higher “fiduciary” standard. They are expected to act in the best interests of their clients. I am an investment advisor and embrace that responsibility. On the other hand, stockbrokers are not held to a fiduciary standard. They are simply required to make sure their recommendations are “suitable” for clients, even if their recommendations aren’t the best, or the best price. Seems a little backwards, right? Well, holding stockbrokers to a fiduciary standard would be a huge change that many firms wouldn’t appreciate. It would probably cause more legal hazard along with more stress and expenses for brokers. Even so, it could happen at some point given the abuses we’ve seen by people operating under the suitability standard. This issue has been highlighted recently by the sale of complex insurance products to elderly and other people who don’t necessarily fully grasp what they are buying.
For CFPs and other people who hold themselves out as planners and advisors, many would like to see an independent oversight board put in place to regulate financial planners. As of March, that seemed unlikely to happen. A “study of the issue” by the General Accounting Office is the more likely outcome for the near future according to a recent article in this month’s Financial Planning magazine. The specific problem which Washington sees and hears about is the prevalence of easy-to-obtain designations which certain financial professionals are using to sell financial products to elderly and/or uneducated consumers who are badly in need of genuine financial advice. As mentioned above, the designation issue for financial planners is a big one since tons of designations exist and most consumers don’t really understand what they represent or how easy or difficult they may be to obtain.
Many advisors, particularly those who have securities licenses including the series 7 and series 65/66 will oppose further regulation on the financial planning profession since we already have oversight from FINRA, our own broker/dealer compliance departments and the SEC in the case of certain investment advisory firms which are regulated at the federal level. To now be required to answer more questions with regard to the specific financial plans and recommendations made to clients may seem like overkill which eventually costs advisors more money and further impedes on our ability to do business.
It sure would be nice to have a short and clean-cut set of rules and regulations guiding the financial planning and investment advisory business. The way it currently stands new professionals entering our business have a tough time figuring out whether to be a broker, advisor, planner or something else and whether to charge fees, how to charge fees, work on a commission basis, or some combination of the above.
Questions or comments? Please e-mail me.
Russell Bailyn

Wealth Manager
Premier Financial Advisors, Inc.
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *231
F: 212-752-7673
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

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