In a recent article about the DOL fiduciary rule proposal on www.LifeHealthPro.com, Michael Kitces, a partner at Pinnacle Advisory Group, brings up a very interesting point: the multitude of ways that financial professionals represent themselves to clients and prospects, particularly in the titles they use, and the description of services they claim to offer.
In the article, Mr. Kitces is quoted saying, “How often do you see ‘stockbroker’ on a business card anymore? You don’t. You see ‘advisor.’ We’ve allowed the sales people to communicate to the public that they are in the business of giving advice. And then we have not held them accountable for doing so.”
Gone are the good old days when an insurance agent calls himself or herself just that – an agent. The term “advisor” is used indiscriminately by so many professionals, very often in an inappropriate manner. Individuals who sell insurance products for commission, who are not registered as an investment or financial advisor, do not provide “advice” (at least, they shouldn’t, unless it is incidental to the sale of the insurance product they are recommending).
In fact, the NAIC advertising model regulation for life insurance and annuities, in an attempt to draw the distinction between insurance agents and financial advisors, specifically includes language in the regulation, which reads, “….No insurance producer may use the terms, such as “financial planner”, “investment adviser”, “financial consultant”, or “financial counseling” in such a way as to imply that he or she is generally engaged in an advisory business in which compensation is unrelated to sales unless that is actually the case.”
Have we, as an industry, helped create our own mess here? It’s hard to say for sure, since, as Mr. Kitces calls out in the article, this point has not been raised by the DOL as part of the proposed rule discussion. The article states, “While no fan of the DOL’s proposal, Kitces shares a perspective with those lobbying hardest on Labor’s behalf: after years of the SEC’s failure to adequately enforce the ’40 Act, consumers can no longer tell the difference between broker and advisor.”
But it certainly begs the question. Had the SEC and the state insurance divisions better enforced this issue, had the industry done a better job of self-regulating ourselves in this regard, what would the DOL proposal look like today? Or would there even be one?
Read the full article here... “DOL fiduciary rule puts broker-dealers in Catch 22”