Investing Blog Roundup: Will Brokers Have to Stop Calling Themselves Financial Advisors?

Right now, there is no regulation of the term “financial advisor.” Essentially anybody (insurance agents, brokers, etc.) can refer to themselves as a financial advisor. Note that this is very different from the term “investment adviser” which does have a specific regulatory meaning.

Of course, most people who don’t work in the financial services industry have no clue as to that distinction. And that leads to situations in which people engage the services of a financial professional, while having significant misunderstandings about the duties and responsibilities of that professional.

As a result of something that happened earlier this month, we might see some changes to this situation. Specifically, the North American Securities Administrators Association (NASAA) amended their Model Rule: Dishonest or Unethical Business Practices of Broker-Dealers and Agents to prohibit “Using a title, purported credential, or professional designation containing any variant of the terms ‘adviser’ or ‘advisor’ without licensure as either any investment adviser or an investment adviser representative, unless otherwise permitted by law.”

This doesn’t mean that any laws have changed yet though. Investment advisers are regulated by the SEC (in the case of larger firms) or at the state level (in the case of smaller firms). NASAA is the association of those state-level regulators. NASAA does not have any regulatory authority of its own. Rather, it produces model rules such as the one above, which state-level regulators can then adopt, adopt with changes, or decline to adopt. Usually, most states adopt the model rule or something very close to the model rule. But, we’ll see.