The FPA doesn't want the brokerage group anywhere near 1940-Act business. The Financial Planning Association (FPA) wants the SEC to pull the reigns in on the securities-industry-run Financial Industry Regulatory Authority (FINRA) and keep it from weighing in on fiduciary matters.

FPA president Richard Salmen asks SEC chairman Mary Shapiro for "clarification on the limits of authority of the [FINRA] with respect to certain financial-planning activities" in a 17 August 2009 letter.

Specifically at issue is a 6 August enforcement action taken by FINRA against a broker-dealer and stockbroker for advertising and sales violations involving misleading financial plans. FINRA fined Lincoln. Neb.-based Ameritas Investment Corporation -- a dually registered broker-dealer and RIA -- $100,000 and suspended and fined one of its brokers for selling "unsuitable investments" and related violations, says the FPA. The broker, who was not registered as an investment advisor representative, is said to have pitched misleading financial plans to more than 200 customers -- and put their homes at risk by encouraging them to borrow against their homes to finance his college and retirement-planning recommendations.

Confusion

"While we commend FINRA for acting to curb fraudulent activity, the SEC has long held financial-planning services involving investment advice to be subject to the Investment Advisers Act of 1940," Salmen writes in his letter to Shapiro. "FINRA, in turn, has long denied any authority to oversee advisory activities under the [1940 Act]."

In a nutshell, the FPA approves of FINRA's move to crack down "on unsuitable sales of investment products within its regulatory authority," but thinks it should keep its New York nose out of the investment-advisory space.

RIAs and some financial planners are governed by the 1940 Act, which stipulates that their advisors act as fiduciaries -- in effect, they must act in the best interests of their clients -- as opposed to the lower standards of suitability that hold sway for brokers.

"As the primary regulator of Wall Street, we commend FINRA for cracking down on unsuitable sales of investment products within its regulatory authority," Salmen says in an FPA press release. "However, due to FINRA's absence of legal authority to regulate broad financial planning activities, and to its inability to impose a fiduciary standard that would enhance investor protection, we believe this task is best carried out by the SEC."

Last month, the U.S. Treasury Department introduced proposed legislation to Congress "to establish consistent standards for all those who provide investment advice about securities" and establish a "Investor Advisory Committee" to represent "the voice of investors" within the SEC. One of its tenets is the imposition of uniform fiduciary standards on brokers and RIA-based advisors alike.

"As Congress undertakes reform of the financial services industry, we point to this particular case as another reason why investors remain confused and vulnerable under the current form of 'silo' regulation," Salmen says in the FPA press release. "Professional oversight of financial planners as planners -- and not merely investment advisers -- would help alleviate this problem by setting fiduciary standards for all financial intermediaries who engage in these services."

Adds Salmen: "In the meantime, we urge the SEC to assert fiduciary protections for investors where there are gaps and ambiguities in the securities laws."

In 2005, the SEC imposed a rule that required brokers who provided financial-planning services to register as investment advisors. The rule was overturned a few months later on the grounds that the SEC has no authority to interpret legislation.

Shapiro was head of FINRA until she was appointed SEC chairman in January 2009. As its CEO she advocated expanding FINRA's role as a self-regulatory agency at the expense of enforcement by the SEC. -FWR

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