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The Latest In Financial #AdvisorTech (October 2021)

October 4, 2021 07:03 am 2 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the October 2021 issue of the Latest News in Financial #AdvisorTech – where we look at the big news, announcements, and underlying trends and developments that are emerging in the world of technology solutions for financial advisors!

This month's edition kicks off with the big news that Franklin Templeton is acquiring O’Shaughnessy Asset Management and its Canvas direct indexing platform, as yet another ‘traditional’ asset manager makes a bet that the future will be increasingly driven by ‘direct’ indexing over traditional mutual funds and ETFs. Notably, though, OSAM’s Canvas wasn’t simply another platform to turn an index fund into one where its component stocks can be tax-loss harvested for incremental tax alpha; instead, it was part of a ‘second generation’ of direct indexing platforms that are building tools for advisors to create increasingly personalized “custom indexes” for each client based on their own individual preferences… where the asset manager can get paid as a Separate Account Manager to implement those unique-to-each-client portfolios?

From there, the latest highlights also feature a number of other interesting advisor technology announcements, including:

Morningstar acquires Moorgate Benchmarks to become a licenser of (direct) indexes
Betterment for Advisors increasingly pivots from TAMP to RIA custodian competitor with more custom model-management tools
The SEC opens an inquiry into when FinTech-driven nudges become formal recommendations or bona fide investment advice
Docupace acquires PreciseFP as digital onboarding increasingly focuses not on advisor replacement but back-office business process automation

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including:

AdvicePay launches Engagements for Enterprises to manage the entire end-to-end process of overseeing fee-for-service financial advice
Vanilla raises $11.6M in Series A funding to scale its estate planning solution for financial advisors
Fidelity partners with Armorblox to help RIAs improve their email cybersecurity to avoid fraudulent wire transfers
MoneyMap.io launches a new API-based service to help existing FinTechs connect their users with financial advisors to ‘upsell’ human financial advice

And be certain to read to the end, where we have provided an update to our popular “Financial AdvisorTech Solutions Map” as well!

*And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit to [email protected]!

Weekend Reading for Financial Planners (Oct 2-3)

October 1, 2021 02:28 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the news that Franklin Templeton is acquiring O’Shaughnessy Asset Management and its ‘Canvas’ direct indexing platform, as yet another traditional asset manager stakes a view that the future will increasingly be built not on mutual funds and ETFs but the use of technology to build more customized portfolios down to the individual stock level (configured via a software interface, and implemented as an SMA that asset managers can charge for?).

Also in the industry news this week:

An RIA is forced to pay out nearly $1M in restitution as a settlement for charging advisory fees on “house accounts” without assigning an advisor to service those clients
FINRA institutes a new rule that will allow ex-brokers to reinstate their Series licenses within 5 years (instead of ‘just’ 2 years) as long as they complete their FINRA CE requirement and pay a (nominal) fee

From there, we have tax planning articles, including:

End-of-year tax planning strategies for the fourth quarter, which are taking on a greater focus with the potential for significant tax law changes that may come into effect for 2022
A look at how ultra-popular GRATs have become with ultra-HNW clients (with one estimate that more than 50% of the top 100 wealthiest families are using the estate planning strategy)
The outlook for the Qualified Small Business Stock (QSBS) tax incentive that may be halved (from $10M to only $5M of capital gains that can be excluded) in the years to come

We've also included a number of marketing-related articles:

How to structure an advisory firm if it wants to serve multiple niches at once (hint: each niche needs its own team of advisors within the firm)
Why client satisfaction isn’t just a function of the service they receive, but their expectations of those services
How the future of growth is all about formulating expertise and making it more ‘visible’ to prospects (e.g., through blogging, social media, and other digital marketing channels)

We wrap up with three final articles, all around the theme of how technology is reshaping our world:

Why the rise of technology platforms for small businesses is making it easier to be a successful solopreneur (despite the calls that firms must achieve greater size and economies of scale to survive)
The ways that Decentralized Finance (DeFi) and the blockchain could change the financial services industry (by becoming the next generation of broker-dealers and RIA custodial platforms?)
How the intersection of human and artificial intelligence is proving to be more effective than humans or AI alone… suggesting that the future of financial advice is less about robots versus humans and more that success will be defined by the human advisors who best augment themselves with technology!

Enjoy the 'light' reading!

Net Unrealized Appreciation (NUA) Tax Strategies For Modestly Appreciated Stock

September 29, 2021 07:05 am 11 Comments CATEGORY: Taxes

While pre-tax distributions from retirement accounts are generally taxed at ordinary income rates, an exception to this rule applies to appreciated employer securities distributed from an employer plan that are a part of a Net Unrealized Appreciation (NUA) transaction. In such instances, the NUA (i.e., the appreciation on the employer securities that occurred within the employer’s retirement plan) is taxed at the more favorable long-term capital gains rates (when sold in a taxable account).

Given the disparity between the two rates, the ability to swap ordinary income tax rates for long-term capital gains tax rates on a portion of a worker’s retirement savings may sound highly appealing. However, doing so is not always a great move. While the NUA itself gets the benefit of long-term capital gains treatment, the portion of the shares distributed that is attributable to their cost when purchased within the employer plan (what would be their basis had they been purchased with taxable dollars) is subject to ordinary income tax rates right away. Additionally, completing an NUA transaction removes the assets (for which NUA is used) from the ‘protective’ tax-deferred wrapper provided by a retirement account.

Nevertheless, there are clearly times when an NUA transaction can be used to help reduce an individual’s tax liability. But to do so, three key NUA rules must be followed:

NUA transactions can only be made after a ‘Triggering Event’;
The employer-sponsored retirement plan must be emptied within one calendar year (i.e., as a lump-sum distribution); and
The shares of stock on which NUA is desired must be moved, in-kind, to a taxable account.

Since the favorable long-term capital gains treatment in an NUA transaction is only applicable to the growth of the employer securities (while the purchase price of the shares is subject to ordinary income tax), the strategy is generally viewed as one that is best reserved for employer securities that have experienced substantial growth. Indeed, the greater the appreciation, the more attractive NUA becomes. Even so, that doesn’t mean that NUA can’t be useful in other situations.

One situation in which NUA with more modestly appreciated employer securities can make sense is when the NUA transaction is used to fund near-term cash flow needs. If a plan participant needs to take a distribution from their plan to satisfy immediate cash flow needs, then absent the use of NUA, the entire distribution will be taxed at ordinary income rates. By contrast, as long as there is at least some level of appreciation in the employer stock in the plan (i.e., some amount of NUA), then using an NUA transaction to fund short-term cash needs will result in a tax savings, as the proportion of the distribution attributable to growth (versus the purchase price) will be taxed at long-term capital gains rates.

Just how ‘short-term’ the cash flow need should be for NUA with modestly appreciated securities to make sense depends on the situation, which should be evaluated based on a taxpayer’s unique set of facts and circumstances. If a taxpayer can fund multiple years of cash flow needs using NUA, without pushing themselves into a higher tax bracket, then such a move is likely to make sense. By contrast, where (a significant portion of) the added ordinary income created by an NUA transaction is taxed at a higher marginal rate than would otherwise be the case if ‘regular’ distributions were spread of those years, the benefit of the long-term capital gains tax treatment on the NUA is often more than offset by the higher ordinary rates that apply to the cost of the shares.

Ultimately, Net Unrealized Appreciation (NUA) can provide certain plan participants with valuable tax-saving opportunities. And while using NUA with modestly appreciated employer securities to fund short-term cash flow needs isn’t likely to be the ‘move’ that makes or breaks one’s retirement success, it’s a relatively easy way for many plan participants to reduce their tax bill. And when it comes to taxes, less is always more!

#FA Success Ep 248: Scaling Diamond Teams Profitably By Charging Separate Planning Fees, With J.D. Bruce

September 28, 2021 07:09 am 2 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 248th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is J.D. Bruce. J.D. is the Chief of Innovation for Abacus Wealth Partners, an RIA headquartered in Santa Monica, CA that manages over $4B in assets for 1,900 clients.

What's unique about J.D., though, is how he’s been able to help scale Abacus to the size it is today by implementing Angie Herbers’ Diamond Team Model, in order to offer a variety of different service models for different types of clients.

In this episode, we talk in depth about how J.D. and Abacus segment their clients into three styles based on their complexity and net worth, including Builders, Protectors, and Changemakers, how Abacus charges a separate financial planning fee in addition to an AUM fee for most of their clients in order to emphasize the planning work that they do and have the flexibility to charge different amounts for different clients depending on where those clients land along the complexity curve, and how J.D. found that implementing Angie Herbers’ Diamond Team Structure was the key to unlocking the puzzle of making sure that clients are comfortable working with different advisors over time while staying connected to the firm.

We also talk about how Abacus has built a focus on working with those who are most interested in shaping their financial lives to reflect their most deeply held values, why J.D. feels that financial planning firms should be focused on their advisors’ capacity, which isn’t defined solely by the amount of time they spend doing their work, but by the emotional impact of the work they do as well, and why Abacus moved away from a “revenue under management” compensation model and toward a model that bases an advisor’s compensation on the competencies they’ve gained and what they’re capable of in the future, rather than just what they’ve accomplished in the past.

And be certain to listen to the end, where J.D. shares why he feels that finding new talent that is a “good cultural fit” isn’t nearly as desirable as hiring people who can become "culture adds" and help change Abacus’ perspective and see things in a different way, why J.D. feels that AUM fees will inevitably compress industry-wide to 50 basis points, but that the price of advice overall will increase as financial planning itself becomes more valuable (and something we can increasingly charge separately for), and how, even though J.D. admits to having an innate dislike of conflict, he realizes that some level of internal conflict and disagreement are often necessary ingredients for advisory firms looking to grow and change.

So whether you’re interested in learning how J.D. and Abacus have implemented Diamond Teams in their practice, how they use different service models and fee structures for their three client segments, or how they structure their compensation, then we hope you enjoy this episode of the Financial Advisor Success podcast, with J.D. Bruce.

Client Testimonials: Leveraging The New SEC-Acceptable Marketing Practices To Connect With New And Existing Clients

September 27, 2021 07:06 am 3 Comments CATEGORY: Marketing

Since the 1970s, the Securities and Exchange Commission (SEC) has prohibited Registered Investment Advisers (RIAs) from using client testimonials in their advertising. While their rules were intended to protect consumers by preventing advisors from showcasing only the best investment results of a few select clients, two major developments in recent years have necessitated reforms of the existing rules to permit the use of testimonials by financial advisors.

First, consumers are increasingly reliant on testimonials and reviews when choosing which products and services to buy, leading to the massive growth of testimonial-based marketing in other industries, but leaving financial advisors without a key tool in their marketing toolbox. Second, the expansion of RIAs’ services beyond ‘just’ investment advice – often addressing increasingly complex family, career, and retirement questions alongside (or sometimes even instead of) managing an investment portfolio – means that the blanket prohibition against testimonials, meant to tamp down on misleading performance numbers, also stifled advisory firms’ ability to highlight other important features like planning expertise and exceptional client service that might matter far more to potential clients than past investment returns.

In May 2021, the SEC finalized its updated advertisement rules to allow the use of testimonials in RIA marketing materials. This change offers a new opportunity for advisory firms to provide social ‘proof’ of their ability to build relationships through their services and to develop trust and a positive reputation among potential clients. The proliferation of options available to potential clients makes the ‘stamp of approval’ of a good testimonial a key part of the client’s decision of whom to hire, which makes it all the more important for advisors to understand how to deploy testimonials as part of their overall marketing strategy.

The core goals of using testimonials are to connect with a target audience in a relatable and authentic way and to highlight the firm’s services and specialties. Accordingly, a good testimonial will go beyond general praise, and will instead reflect the firm’s own values and areas of specialization. For example, a firm with a certain niche focus might use a testimonial that specifically acknowledges their unique area of expertise, not just in a positive manner, but with honesty as well – after all, the trust-building effect of testimonial advertising only works as far as the testimonials themselves are trustworthy.

Of course, the ability to select good testimonials depends on actually having a ‘supply’ of testimonials, so firms must find some way to gather testimonials to be able to choose the ones that work best for them. Some firms may already have an existing trove of material on third-party review sites like Yelp or Google Reviews (which were permitted before the new rules went into effect), while others can use a Net Promoter Score (NPS) survey or a direct email request to current clients to obtain new testimonials.

Regardless of how the testimonials are ultimately used – on the firm’s website, in social media posts, on third-party platforms, or elsewhere – they should complement the firm’s overall marketing strategy and comply with SEC rules including appropriate disclosures and client confidentiality (e.g., the client must give permission for the firm to use their testimonial in public). Luckily, the same principles that make for an effective testimonial – honesty, authenticity, and transparency – also lend themselves to compliance under the new rule, so that ultimately, firms that take advantage of the new rule allowing testimonials can do so while highlighting their services in a relatable, trust-building way!

Weekend Reading for Financial Planners (Sept 25-26)

September 24, 2021 02:24 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with a look at the recently filed "Petitions For Rulemaking" that XY Planning Network submitted to the SEC regarding the separation of brokers and advisors, which would require brokers offering financial planning services (or delivering financial plans to their clients) to become fiduciary RIAs, along with any brokers who marketed to the public that they offer ongoing (investment) advice to their clients. Though, ultimately, it remains to be seen whether the SEC will act with new rulemaking (or continue to focus on more stringent enforcement of Regulation Best Interest itself) in the coming year.

Also in the industry news this week:

As the American Families Plan (and separate infrastructure legislation) winds its way through Congress, all eyes are on what provisions are likely to make it through, and which may still end out on the cutting room floor
Schwab is launching a new "Moneywise America" financial literacy program that aims to provide free financial literacy education to every (!) high school in the country by 2025

From there, we have several investment management-related articles:

Why risk tolerance questionnaires may be less effective when working with decumulation clients (at least until it's clear whether they want an investment-style or guaranteed-income-style approach to begin with)
How not in danger Social Security actually is for most future retirees, both because the Social Security trust fund only funds roughly a quarter of benefits in the first place... and in the coming years, the pressure on the government to implement a policy fix will only grow further
Strategies for Social Security "do-overs" for those who change their mind and want to start earlier, or later, than they originally chose to begin their benefits

We've also included a number of articles on financial psychology and helping clients to implement their plans:

Why most clients don't actually implement their financial plans (because they didn't really have buy-in to the recommendations in the first place?)
Consumer research showing that most clients really are comfortable with virtual meetings, and many even prefer them (though some will always still want the face-to-face in-person approach)
Why framing a lack of savings as a "self-control" problem may be amplifying Americans' low savings habits, and the alternative approaches to help clients save more

We wrap up with three final articles, all around the theme of the power of asking (good) questions:

Why turning questions inward to yourself can be one of the most powerful ways to gain new perspective
How leaders asking questions of their teams can promote a culture of greater collaboration and trustworthiness
A list of 25 "icebreaker" questions for those who want to start more conversations with (good) questions... but just aren't sure what questions to ask!

Enjoy the 'light' reading!

Kitces & Carl Ep 69: Retaining The Client Who Transfers Out Without Notice

September 23, 2021 07:03 am 0 Comments CATEGORY: Kitces & Carl Podcast

By default, financial advisors generally think that they should hold on to their clients as long as they can... ideally for the remainder of their careers. That is not, however, always the case, and as a result, news that a client has decided to terminate the relationship out of the blue can cause a certain amount of anxiety... especially when said client has a portfolio that accounts for a significant portion of the advisor’s revenue. Oftentimes, the advisor may not understand what went wrong, why the client left, and whether (or how) they should try to win the client back.

In our 69th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how advisors can approach clients who terminate their relationship with a firm without notice, the importance of understanding the reasons for the client’s behavior in the first place, and the potential opportunities that arise when clients decide to leave.

As a first step, it’s important to recognize that not all clients will benefit from lifelong relationships with a single financial advisor, because the reality is that, while a client’s original needs and circumstances may have initially set them up as an ‘ideal’ client, their needs and circumstances will almost certainly change over time, and the same advisor (or firm) may no longer offer what is best suited for the client. Accordingly, the fact that a client has chosen to leave without notice does not necessarily reflect negatively on the advisor. Instead, some clients may simply be uncomfortable about telling their advisor they’d prefer a change, uncertain about whether the conversation may become confrontational.

Yet, with the honest intent of truly understanding what is happening with the client, an advisor can benefit from learning how to better serve the client (even if that means helping the client find a more suitable advisor) and, in the process, potentially find ways to improve their practice (which can involve increasing the frequency of client touchpoints, re-evaluating how services are provided, and determining if the right services are being offered to clients in the first place). With that perspective in mind, advisors can approach the (soon-to-be-ex) client to understand why they made the decision they did, and then identify the best course of action for the client… and for the firm. Generally, advisors following this path will be faced with one of three outcomes: 1) winning the client back by addressing whatever issue was grieving the client, often resulting from a lack of communication; 2) agreeing that the client’s needs have changed beyond the scope of services provided by the firm, and helping the client find a new advisor who is better suited to meet the client’s new needs, or 3) graciously accepting that the client simply wants to leave, with no interest in sharing the reasons why, other than perhaps expressing a desire to seek out new services on their own.

By framing the conversation with the question, “Would you extend me the professional courtesy of walking me through what happened?” and not around how to keep the client’s business, the advisor can provide an emotionally neutral space for the client to express any grievances and concerns, reassuring the client that the conversation is not meant to be a confrontational plea to reconsider leaving, but instead, an opportunity for the advisor to either fix the situation, or to help the client find a new, more suitable advisor.

Ultimately, the key point is that an unexpected client departure can be be an opportunity for growth and learning, as the advisor has a chance to identify mismatches between client expectations and the services they offer, which (at the end of the day) can give advisors insight into how they can improve their practices. And having the confidence to let go of clients who aren’t a good fit for the advisor, despite the fact that it can be daunting to lose clients, can actually end out being an blessing in disguide, freeing up space for the next, more suitable client!

Gaining Better Understanding of Client Personality, Attitudes, and Values Using Psychometric Assessments

September 22, 2021 07:01 am 5 Comments CATEGORY: Financial Psychology

Financial advisors have used various personality assessments with their clients for decades as a way to identify risk tolerance and to make the right asset allocation decisions. With the growing focus on financial psychology in recent years, though, many advisors have sought to better understand their clients’ behaviors and biases around money, with the ultimate goal of helping them make better financial decisions. In response, there has been a proliferation of behavioral assessments that purport to offer valuable insights into a subject’s psychological characteristics. However, without industry regulations for how these tests are developed, financial advisors need to recognize how to select the right assessments to use with their clients. Yet, how do we know whether an assessment actually gives an accurate psychological profile of our clients? Having at least a baseline understanding of psychometrics – the science of measuring unseen, personal characteristics – can provide a way to determine not only how useful an assessment can actually be for advisors to better understand the client, but also how to select suitable tools based on their psychometric properties.

The usefulness of a test can be judged according to three key elements: design, reliability, and validity. A test with a good design will clearly identify its purpose and the population it was designed for, and will also be engineered to eliminate error and bias from the results. A reliable assessment will provide consistent results each time it is administered, and a valid assessment will measure specifically what it claims to measure. A good test will also have had statistical analyses conducted that confirm the reliability and validity of its design, with published results so its users (e.g., advisors and their firms) can review the developers’ efforts to construct accurate assessments.

One of the core functions of psychometric assessments in the context of financial planning is to measure a client’s psychological risk tolerance in order to predict their behavior in various market conditions. Knowing which clients might be inclined to make poor decisions in up and/or down markets can help advisors focus attention where it is needed most during those often intense and stressful periods. Psychometric tests also aim to examine a client’s enduring traits, which remain relatively stable over time and can therefore be used to predict the client’s behavior in conditions different from those in which they took the assessment—an important attribute in an industry where market conditions and client behavior can both be highly unpredictable.

Beyond serving as traditional risk tolerance surveys, psychometric assessments can also help advisors to understand a client’s communication style, personality, and saving and spending behaviors more objectively and at a deeper level than their own subjective judgment (which can be fraught with biases and sometimes even knowledge gaps of the client’s personal circumstances). As the topic of financial psychology becomes more prominent in our field (as evidenced by the CFP Board’s inclusion of “Psychology of Financial Planning” in its list of Principal Knowledge Topics), it becomes increasingly important for advisors to better understand their clients’ behavioral and emotional traits to improve communication, behavior, and, ultimately, the financial planning recommendations given to their clients.

Ultimately, the key point is that when chosen carefully and used correctly, well-designed psychometric assessments can give advisors valuable information about their clients that cannot be obtained by a simple form, survey, or interview. With insight into their clients’ inherent psychological traits – which are often hidden beneath layers of personality – advisors can better position themselves to deliver financial plans that will more effectively ‘stick’ with their clients!

#FA Success Ep 247: Systematizing How To ‘Deliver Massive Value’ To Charge What You’re Really Worth, With Matthew Jarvis

September 21, 2021 07:03 am 4 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 247th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Matthew Jarvis. Matthew is the owner of Jarvis Financial, an RIA in Seattle, Washington that manages $240 million for 170 households.

What's unique about Matthew, though, is his ongoing focus on increasing the overall efficiency and profitability of his firm first by systematizing his business processes in order to deliver even more value to his clients... and then raising his fees so that he's fairly compensated for the greater, more systematized value that he now delivers.

In this episode, we talk in depth about how Matthew's practice has evolved since he was one of the first guests on this podcast, including hiring an additional advisor who is taking over 90% of the firm's client relationships so Matthew could scale the launch of his advisor coaching program and fintech solution, how by graduating clients that aren't a good fit for his firm (and referring them out to younger advisors who are) Matthew has managed to more than double his AUM in the past four years by focusing on onboarding increasingly higher net worth clients, and how Matthew uses a concept he calls "extreme accountability" as his own impetus to move forward on important (but sometimes unpleasant) business tasks… by making the status quo more even more unpleasant than the task itself.

We also talk about why Matthew feels that mastermind groups are so important (and the specific steps advisors can take to create and nurture their own mastermind groups), how Matthew decides which clients to "graduate" in order to improve the performance of his practice (and the things he does for those clients to make their transition as smooth as possible), and Matthew's thought process behind his decision to raise his fees (and how he communicated that increase to his clients).

And be certain to listen to the end, where Matthew shares how his entrepreneurial drive has continued in recent years, including the launch of The Perfect RIA advisor coaching program, a fintech offering, and two podcasts, how Matthew got over his own limiting beliefs and (as he calls it) "head trash" around hiring another advisor on his team by envisioning what he wanted his practice to look like five years from now and identifying what was standing in the way of him getting there, and Matthew's four rules for success, including, "deliver massive value, be intentional, do what works, and willpower is not enough".

So whether you’re interested in learning how Matthew honed his business process in order to deliver more value to his clients, how he doubled the size of his practice with only a slight increase in the number of clients he serves, or how he uses the concept of extreme accountability to move his practice forward, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Matthew Jarvis.

Why XYPN Is Petitioning The SEC To Implement Title Reform Under Section 208(c)

September 20, 2021 12:00 pm 20 Comments CATEGORY: Regulation & Compliance

There is a fundamental difference between hiring an advisor and hiring a salesperson. As while both have essential roles in the economy – sometimes we want the advice of a nutritionist about our red meat intake, and other times we simply want the butcher to sell us the best cut of meat – regulation has long recognized the importance of “truth in advertising” when it comes to those respective roles. Simply put, it’s important for advisors to communicate that they’re advisors and for salespeople to communicate that they’re salespeople (and not advisors), lest the consumer receive conflicted advice from a salesperson who isn’t actually trying to advise but simply wants to sell their product. Thus why nutritionists are subject to different rules than butchers, why doctors are regulated in a distinct manner from the drug industry, and why investment advisers are regulated in a different manner than brokers.

In fact, the entire genesis of the Investment Advisers Act – that forms the foundation for the fiduciary regulation of investment advice – was a stated intention by Congress to separate the “bona fide investment counselor” from the “tipsters and touts” looking to sell brokerage products under the guise of advice. Which, notably, didn’t mean limiting broker-dealers from engaging in the sales activities of brokering and dealing – which are foundational to the operation of the stock market and the function of capital formation in public markets – but instead was about separating the activities of advisors and brokers, by applying separate registration requirements for investment advisers, and higher (fiduciary) standards of conduct for those who registered as such.

To maintain this distinction, Congress also included in the Advisers Act under Section 208(c) a requirement that it wasn’t even permissible to use the “investment counselor” title, or to “represent as an investment counsel”, without actually being principally in the business of providing such advice services (and subject to the fiduciary standard that would apply to such advice). In other words, advisors weren’t permitted to advertise that they were advisors unless they agreed to be regulated as (fiduciary) advisors.

Yet in the 80 years since, the titles used to convey advice services have changed substantially, from what was once a relatively ubiquitous title of “investment counselor” to the more modern versions “financial advisor” or “financial consultant” or “wealth manager”. Notably, though, Section 208(c) of the Advisers Act regulates not just the title of “investment counselor”, but also the function of providing “investment counsel” services… which is just as relevant today as it was 80 years ago. Even though, in practice, the SEC does not regulate “financial advisor” titles today the way it regulated “investment counselor” decades ago.

At the same time, the growth of financial planning as a distinct profession alongside investment advice has created new regulatory challenges. In 2005, the SEC recognized this by declaring, similar to Section 208(c) for investment counsel, that those who either hold out as a “financial planner”, offer financial planning services, or deliver a financial plan to the client, cannot operate as brokers and must be regulated as fiduciary investment advisers. Yet when the 2005 rule was subsequently vacated by the Courts – for reasons unrelated to the regulation of financial planners – the SEC stated in a 2007 Proposed Rule that it would ‘soon’ revisit the regulation of financial planning. But 14 years later, the 2007 Proposed Rule is still just proposed.

Accordingly, this week XY Planning Network is filing a series of two Petitions for Rulemaking to the SEC, to take up again the 2007 Proposed Rule and its consideration of whether financial planning titles and services should automatically trigger fiduciary investment adviser registration, and to modernize Section 208(c) of the Advisers Act and better define in today’s environment what constitutes “investment counsel” services that would necessitate not just registration as an investment adviser but a requirement to principally be in the business of advice in order to market one’s services as such.

Because in the end, there remains an essential role for both advice and sales, and consumers should have the choice about whether to engage a salesperson to implement a desired purchase, or an advisor to help them select the right purchase to implement in the first place. But regulation of advice and sales begins with a fundamental truth-in-advertising obligation that advisors and salespeople advertise as such, so the end client understands the nature of the relationship that they are engaging to begin with. And so as the offering of financial advice services evolves, along with the marketing and other titles used to convey such services… it’s time for regulation to evolve with the times as well!