Protecting Your Practice. Vessenes Katherine

      ROGER IS A REGISTERED representative with Abundant Profits Broker-Dealer. Roger assists clients in choosing an investment adviser, and Roger monitors the adviser’s performance on a continuing basis. Frequently the adviser is given discretionary authority over the client’s funds and is required to funnel all securities transactions through the broker-dealer so Roger will receive a commission.

      Question: Does Roger have to register as an investment adviser?

       Answer: Yes. Such activity is outside the scope of normal brokerage operations.41

      • They cannot hold themselves out to the public as financial planners or investment advisers, or as persons providing those services. Instead they must hold themselves out as securities or financial services professionals, stockbrokers, or insurance agents.

      • They can provide investment advice only in the capacity of registered representative of their broker-dealer, under the broker-dealer’s control, knowledge, and approval.

      • They must disclose their dual capacities of both securities and insurance product sales when dealing with any client or potential client.

      • They are not allowed to charge nor receive any clearly definable fee other than normal and customary commissions for the provision of any investment advisory service.

      • Finally, the brokerage and insurance commissions charged to clients who obtain brokerage and insurance services are based on the same factors as those used to determine the commissions for clients who obtain only one of the services.42

      SALLY STOCKBROKER does not hold herself out as a financial planner, nor is her broker-dealer a registered investment adviser. However, as a service to her clients, she uses the firm’s computer system to do estate planning projections, retirement projections, and asset allocation models. After gathering the data from the computer, she makes written recommendations to purchase specific investment products in line with the clients’ goals.

      Question: Does Sally qualify under the broker-dealer exclusion and not have to be an RIA?

      Answer: Sally, or her firm, should register as an investment adviser. It seems the services she is performing are beyond those incidental to a stockbroker. They have definitely moved into the financial planning area as defined by the SEC, particularly because she is providing clients with a written plan. In short, if she is doing planning, she must register.