Views on improving the integrity of global capital markets
15 August 2018

SEC Proposes to Restrict Broker/Dealer Use of “Adviser” Title

If the SEC adopts a rule as proposed, broker/dealers will no longer be able to use the term “adviser” or “advisor” in their names or titles when marketing themselves to investors. Citing the confusion caused to investors by the current use of these terms by broker/dealers, the SEC proposal would restrict the use of such terms to registered investment advisers only.

Why does this matter? Isn’t it all just advertising and don’t investors know the difference between an investment adviser and a broker/dealer? Not so, says the SEC-commissioned Rand Study in 2006 as well as an SEC staff report issued in 2011. Those reports confirm that retail investors do not understand the primary differences between investment advisers and broker/dealers, including the standard of care that each is legally required to use.

Registered investment advisers operate under a fiduciary duty standard of care that requires them to put their clients’ interests first. The expectation for greater care carries positive connotations. Consequently, a range of financial service providers have undertaken over the years to incorporate some form of “adviser/advisor” into their names and marketing materials to imply that they too operate under the highest standard. What unsuspecting investors may not understand, however, is that those calling themselves “advisors” may be operating only under a suitability standard that does not require them to act in their clients’ best interests.

CFA Institute Support of the SEC Proposal

CFA Institute hopes that all of this is about to change. In our 7 August comment letter to the SEC, we strongly supported prohibiting broker/dealers from referring to themselves as advisers/advisors when acting in the capacity of broker/dealers. We believe the prevalent and ongoing misuse of titles has perpetuated mis-selling in an environment where certain activities of broker/dealers and advisers have been allowed to blur. This title misuse also contributes to investor confusion by reinforcing a belief that there is little difference in standards.

Although the SEC’s proposal is fairly straightforward on how this title restriction would apply to “standalone” broker/dealers, we think the proposed method is complicated and convoluted when applied to dual registrants (firms that are both broker/dealers and registered investment advisers) and “dual-hatted” professionals (those who act both as brokers and advisers to their clients). In these two situations, we recommended a simple and straightforward approach: the SEC should require broker/dealers to call themselves “brokers” or “broker/dealers” in their marketing materials and communications with clients; their registered representatives should refer to themselves as “brokers” or “salespersons.”

The SEC’s proposal on titling was but one of three issued this spring addressing standards of conduct for broker/dealers and investment advisers for which CFA Institute submitted comments.

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Photo Credit: ©Getty Images/FARBAI

About the Author(s)
Linda Rittenhouse, JD

Linda Rittenhouse, JD, is a director of capital markets policy at CFA Institute. She focuses primarily on issues related to investment products and investment regulation. Rittenhouse holds a JD degree.

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