by James P. Dowd, CFA
As a CFA charter holder, today I received a copy of Paul Smith’s letter to incoming SEC Chair Jay Clayton. Smith is the CEO of CFA Institute, the leading professional organization for investment management professionals. The letter offered several recommendations, the first two of which I have supported publicly for many years as an individual and as CEO of North Capital. Beyond the specific policy ideas, Smith’s letter simply and elegantly highlights the issue at the core of the debate over the fiduciary rule: misrepresentation. Smith’s basic point: commission salespersons have a role to play in financial markets, but that role is not providing advice with limited oversight under a made-up title “financial advisor.” The full letter may be viewed here, but these two paragraphs shine a bright light on the central issue in the debate:
“We, like the Commission’s Investor Advisory Committee , recommend that the Commission require that anyone wishing to refer to their title and/or activities as advisory in nature (e.g. “adviser” or “advisor”) adhere to the Investment Advisers Act and the fiduciary duty implied by common law interpretation of the Act. Such control of terminology would not be new to the Advisers Act, which already expressly limits use of the term “investment counsel” to those who must adhere to the Advisers Act’s requirements.
At the same time, we believe commission-based sales activities serve important client needs and give investors options for how they wish to conduct their investment activities. Whether commissioned brokers provide investment ideas or execute trades, we support that they be permitted to pursue their business activities, so long as they are clear about their roles vis-à-vis their clients. Specifically, we recommend that the Commission require that they refer to their roles with the title, “salespersons.” For too long, these sales staff have blurred the line between what they do – selling investment ideas to generate commission-based transactions – and what investment advisers do – advising clients on investment strategies and tactics to achieve their financial goals.”