New Trends in the Regulation of Financial Planners

By Kameda, Roberta R. W. | The National Public Accountant, August 1990 | Go to article overview

New Trends in the Regulation of Financial Planners


Kameda, Roberta R. W., The National Public Accountant


New Trends in the Regulation of Financial Planners

I've been asked to speak to you today about new trends in regulating financial planners. To start, however, I'd like to provide you with some background information that I think would be useful, beginning briefly with use of the terms "financial planner" and "investment adviser", since there may be some confusion about what those terms mean and how they are used. I'd then like to discuss the Investment Advisers Act of 1940 and how it may apply to you. After that I'll turn to new trends, focusing first on SEC's proposed rules for certain small investment advisers and its recent legislative proposal calling for a self regulatory organization for investment advisers and then on a bill recently proposed by Congressman Boucher to amend the Investment Advisers Act.

As an attorney, I must preface my remarks with a disclaimer. SEC rules require that I tell you that I speak only for myself and that my views do not necessarily reflect those of the commission or its staff.

Financial Planner vs.

Investment Adviser

Financial planner -- all of you are familiar with the term. Some of you may label yourself as one. It seems to me that the term "financial planner" is used rather loosely to cover a wide range of activity. While there is no strict definition of "financial planner", the staff of the SEC stated in Release No. IA 1092 that: "Financial planning typically involves providing a variety of services, principally advisory in nature, to individuals or families regarding the management of their financial resources based upon an analysis of individual client needs. Generally, financial planning services involve preparing a financial program for a client based on the client's financial circumstances and objectives. This information normally would cover present and anticipated assets and liabilities, including insurance, savings, investments and anticipated retirement or other employee benefits.

The program developed for the client usually includes general recommendations for a course of activity, or specific actions, to be taken by the client. For example, recommendations may be made that the client obtain insurance or revise existing coverage, establish an individual retirement account, increase or decrease funds held in savings accounts, or invest funds in securities. A financial planner may develop tax or estate plans for clients or refer clients to an accountant or attorney for these services."

By comparison, the Investment Advisers Act, which governs the activities of persons engaged in the business of providing investment advice for compensation, expressly defines "investment adviser" as "any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities."

Whether a person providing financial planning services is an investment adviser will depend upon three things: 1. Whether that person gives

advice or issues reports or

analyses regarding securities; 2. Whether he or she is in the

business of providing advisory

services; and 3. Whether the person receives

compensation for providing

those services.

The SEC's view is that there is a significant overlap between financial planning and investment advisory activities and that most financial planners are probably required to register under the Advisers Act. As a general matter, however, accountants who give investment advice as an incident to their regular accounting practices, who do not hold themselves out as investment advisers or financial consultants or planners, and who do not receive separate compensation for the advice will not be subject to the Investment Advisers Act. …

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