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SEC Clarifies Rules on Use of the Term "Advisor"

By NAIFA on 5/3/20 9:14 PM

Topics: Advocacy

In recently updated Frequently Asked Questions (FAQs) on its new Regulation Best Interest (Reg BI), the SEC offered some clarification on when it would be permissible for broker-dealers and their registered representatives to use the terms “advisor” and/or “adviser” as part of their name or title once Reg BI goes into effect on June 30, 2020.  The SEC, in Reg BI, did not specifically prohibit the use of these terms by broker-dealers and their reps, and the FAQs indicate that a broker-dealer can use these terms when acting as a municipal advisor, a commodity trading advisor or “in a role specifically defined by federal statute”.

 

With respect to providing advice or making recommendations to individual consumers, however, the bottom line is that as a general matter if a broker-dealer or its reps uses these terms when providing investment advice to a retail customer (i.e., for example, when they are advising a client on what mutual fund to buy for the consumer’s own account) they will be presumed to be in violation of Reg BI, unless the BD is also a state or federal registered investment adviser. A broker-dealer being affiliated with a registered investment adviser is not sufficient; the BD must also be a registered investment adviser in order to be able to use the terms “advisor” and/or “adviser”. (Please note: these restrictions only apply to broker-dealers and their registered representatives; if someone is only licensed as an insurance producer these rules regarding the use of “adviser”/ “advisor” do not apply).

 

NAIFA raised concerns about these restrictions in our meetings with SEC commissioners, and the final version of Reg BI does allow some flexibility for BDs that are not also investment advisers to use these terms if they are not used as part of the firm’s or individual’s name or title. A broker-dealer and its reps are able to use these and similar terms in marketing communications (such as “I have been a trusted financial advisor for over 20 years”), and a registered representative can still use these terms to indicate membership in a professional organization, such as writing on your business card “Member of the National Association of Insurance and Financial Advisors”. Broker-dealers that have the word “Advisor” or “Adviser” in their name and are not also registered investment advisers will be required to change their name; NAIFA’s continued use of its name is not impacted by this, since NAIFA is not a broker-dealer.

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