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Financial Adviser Title Gets More Complicated

In a Forbes.com article, dated July 1, 2019, Contributor Julie Jason addresses the SEC's new rules on who can be an "adviser" under its Regulation Best Interest. See Is Your Financial Adviser a Financial "Adviser?" Should You Care?

Ms. Jason spends a good deal of her piece talking about the potential for confusion over titles and, specifically, the challenge of brokers who call themselves "financial advisers." Here she is talking about securities-licensed brokers, many of whom work for "large broker-dealers that are dually registered (as broker-dealers and advisers), for example Merrill Lynch and UBS." She asks the question whether those brokers can be called advisers. She answers with, wait for it... Maybe. "If the broker is 'not also a supervised person of an investment adviser 'he or she cannot use 'the term "adviser" or "advisor" as part of a name or title.' (cite omitted) However, he or she can use the firm's name if the firm uses 'adviser' or 'advisor.'"

After some discussion of the new regulation and its best interest requirements, Ms. Jason states: "In today's world, the term 'financial adviser' is simply a marketing term, which may disappear at some point after brokers are prohibited from using it." This is where there is a clear relationship to a provision that also appears in NY's new Regulation 187, which imposes a somewhat different "best interest" standard than the SEC's.

Reg 187 states that an insurance producer "shall not use a title or designation of financial planner, financial advisor or similar title unless the producer is properly licensed or certified and actually provides securities or other non-insurance financial services." Section 224.5(c). This section is important because many insurance agents also call themselves "financial advisors" as a marketing term. They don't like the perception of "agent" and "financial advisor" sounds better. Some actually go so far as to become securities-licensed as an investment adviser representative, but never actually provide securities advise. They merely use the title for its marketing cache. Both NY and the SEC, seem to be getting at this marketing issue and they don't like it.

Under these two regulations, insurers that permit agents to use financial adviser/advisor in their personal marketing and sales of the carrier's products, are likely to be held to a standard of knowing who is using that title and what the basis is for an individual's use of that title. Gone are the days when the marketing of a broker or an agent as a financial adviser was a low risk proposition. Both NY and the SEC have gone out of their way to say they are concerned about consumer confusion on this point.

Now is the time to let all insurance producers know that "financial advisor" is not a title they can legally use as a marketing tool any longer. If they use it they need to have a registration to support it and, in NY, a practice of actually providing non-insurance financial services.