XYPN petitions SEC for brighter line between brokers, advisers

The XY Planning Network filed petitions with the Securities and Exchange Commission Monday to promulgate rules that would sharpen the distinction between brokers and investment advisers.

The network, a financial planning platform for fee-for-service investment advisers, is prodding the SEC to write regulations that force brokers to register as advisers if they give advice, engage in financial planning or hold themselves out as advisers.

Brokers must comply with the SEC’s Regulation Best Interest, which went into force in June 2020, while investment advisers must adhere to a fiduciary standard when making recommendations to clients.

Fiduciary advocates argue the fiduciary standard is more rigorous than Reg BI, even though Reg BI was designed to be a tougher broker requirement than the previous suitability standard.

Michael Kitces, executive chairman and co-founder of XYPN, said the group wants the SEC to clarify the differences between brokers and advisers rather than draft a regulation that puts both under the same advice standard.

“We’re not advocating for a uniform fiduciary standard for brokers and investment advisers,” Kitces said Friday in an online meeting with reporters. “We’re advocating for … the clear dividing line between them.”

An SEC spokesperson did not immediately respond to a request for comment.

The petitions for rulemaking target the broker-dealer exception in the Investment Advisers Act of 1940 that allows brokers to avoid registering as advisers if they give advice that is “solely incidental” to the sales of investment products.

For many years, brokers especially those who are dually registered as advisers have been exploiting that loophole by using titles such as financial planner and financial adviser, and marketing their services in a way that makes them look as if they’re investment advisers, XYPN asserts.

“Brokers and their firms continue to be subject to a lower sales-oriented regulatory standard that allows broad use of advisor-like titles while continuing to operate a more conflicted, sales-driven implementation model, leading to consumer confusion,” XYPN said in a statement.

The petitions ask the SEC to complete a 2007 rulemaking that would restrict brokers from offering financial planning services and to reform the Investment Advisers Act to clarify the titles that can be used only by investment advisers.

The debate over the “solely incidental” exception for brokers has been going on for more than a decade stretching back to a 2007 court ruling that required brokers to act as fiduciaries for clients in fee-based advisory accounts. The tension has continued through other milestones of advice regulation, such as the Dodd-Frank financial reform law, the Obama administration’s fiduciary rule for retirement accounts, and Reg BI.

Kitces said he sees the petitions filed Monday as a way “to continue the conversation.”

Now is a particularly good time to revive the dialogue because Chairman Gary Gensler is presiding over the five-member SEC, which has a 3-2 Democratic majority. Reg BI was implemented by a Republican-majority SEC during the Trump administration.

Gensler has a “reputation for being much more pro-consumer,” Kitces said. He is enthusiastic about Gensler’s recent appointment of Barbara Roper, an influential investor advocate, as a senior adviser.

“I take it as an encouraging sign that the commission under Gensler wants to figure this out and get this right with a high-profile hire like Barbara Roper,” said Kitces, head of planning strategy at Buckingham Wealth Partners and publisher of the Nerd’s Eye View blog.

The post XYPN petitions SEC for brighter line between brokers, advisers appeared first on InvestmentNews.

Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.

Andrew Vincent
Andrew is half-human, half-gamer. He's also a science fiction author writing for BleeBot.
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