Protecting Your Practice. Vessenes Katherine

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СКАЧАТЬ you limit your business to advice about securities and/or insurance, and all of your compensation is commission based?

      ________YES _________NO

      If yes, go to next question. If no, go to 3.

      2. Do you call yourself a registered representative, insurance agent, or some other financial professional term other than “financial planner?”

      ________YES ________NO

      A yes answer here does not automatically mean you are only a registered representative, insurance agent, or other financial adviser. Go to next question.

      3. Do you refrain from calling yourself a financial planner?

      ________YES ________NO

      If no, this does not automatically make you a planner. Go to next question.

      4. Do you limit your advice on insurance and securities to the traditional subjects covered by brokers and agents?

      _________YES __________NO

      If you scored four yes answers here, you can be comfortable with a registered representative or insurance agent label.

      Second Tier

      5 Do you give advice about securities for which you are compensated by a fee?

      __________YES __________NO

      No matter what your response, go to next question.

      6 Does your advice about securities go beyond that of a typical broker?

      __________YES __________NO

      A yes answer to either 5 or 6 will make you an investment adviser who needs to be registered with the SEC and most states. You are still not necessarily a financial planner.

      Third Tier

      7 Do you perform the business of planning as defined by the SEC?

      __________YES __________NO

      If yes, you are a planner for the purposes of the SEC and many states, no matter what you call yourself.

      8 Do you hold yourself out as a planner, using it as a marketing tool, but really function as a registered representative, insurance agent, or pension consultant?

      __________YES __________NO

      If yes, you may trigger financial planner status in some states where they have a holding out or title statute to define a financial planner. This holds true even if you gave a no answer to 7.

      TO FURTHER DETERMINE if you are a financial planner, take the following two steps. First, look at your business activities, comparing them to SEC Release IA- 1092. If your activities match the definition, you are a financial planner. Second, if you are not providing financial planning, look to your state statutes and rules for a holding out provision. You may be a planner just because you hold yourself out as one.

      If you are indeed a planner, and this may be a shock to some financial advisers and professionals, you might as well call yourself one. You will be bound by the rules affecting planners regardless of how you label yourself. This will put you squarely under the SEC and state rules and regulations, which endeavor to make sure the public is not misled. Consequently, the SEC staff and state securities departments smile upon financial advisers who give fair and honest disclosure about their true business activities.

      If you cannot tell if you are legally a planner, get a written opinion from your insurance company’s home office, broker-dealer, or an attorney who specializes in this area. In some cases you may want to contact the SEC or your state securities department directly for a no-action letter to clarify your position.

      Finally, if you are not providing planning services, do not call yourself a planner: it may trigger unnecessary rules, requirements, and obligations.

      CHAPTER 2

      THE INVESTMENT ADVISER

      ONE OF THE MOST complicated, confusing, and misunderstood subjects in the financial services industry is the role, registration, and regulation of the investment adviser. Whether your firm is a large organization managing assets for multiple mutual funds or a one-person investment consultant on Main Street, many of your responsibilities and liabilities are determined by whether or not you or your firm are legally required to be registered as an investment adviser.

      There are many benefits to being an RIA. It is the only way you can legally charge fees, whether an hourly rate, a flat fee, or a percentage of assets under management. It allows you legally to provide a wider range of services and financial planning recommendations, which can increase your revenues and market penetration. Finally, this license can be a big advantage when it comes to attracting more sophisticated and upscale clients.

      The confusion starts with how to spell adviser. English teachers have long favored the use of “advisor.” Then, in 1940, Congress opted for adviser with its passage of the Investment Advisers Act. Over the next half century, a dual spelling system – adviser vs. advisor – fought it out in the legal and popular press. In the end, many journalists yielded to Congress. Bloomberg Press style now conforms to that of Congress and uses only the adviser spelling. As Congress has yet to pass an “advisery” rule, that word remains true to its original form and is spelled “advisory.”

      This chapter makes the whole subject more clear and offers strategies for avoiding common but dangerous land mines. Look for two main things in this chapter and how their application will affect you and your practice:

      1. The definition of investment adviser on both federal and state levels. Does your firm fit that definition, or are you and your firm exempt or excluded from having to register?

      2. If your firm is an investment adviser, are you responsible to the SEC, your state, or both for oversight? The 1996 Investment Advisers Supervision Coordination Act created a distinction between large RIAs, which must be registered with the SEC, and smaller firms, which must be registered with state securities administrators. How does this legislation affect your practice?

Firm and Individual Registration

      IT IS IMPORTANT TO DIFFERENTIATE at the outset between firm and individual registration. Large investment advisers are typically corporations who retain individuals who are investment adviser representatives or associated persons. These are the people who are actually meeting with clients and giving investment advice. Sometimes an RIA is an unincorporated sole proprietor. Both the large corporate entity and the unincorporated sole proprietor are considered to be the RIA or the “firm.” However, only when a sole proprietor is registered as an RIA is the individual person an RIA. This distinction is frequently misunderstood and used erroneously in the industry where it is not uncommon to hear individuals say they are RIAs when in fact it is their corporation that is the RIA and the individuals are technically representatives or associated persons of the firm. In this book, when using the phrase “registering as an RIA,” it means either the individual must register as an RIA or affiliate with an RIA.

      The distinction between individual and firm registration СКАЧАТЬ