The SEC Has Abandoned Consumers

The SEC has totally abandoned its consumer protection mission, which is clearly spelled out in the law, and has been for at least the past 81 years. That is the bold and persuasive argument made by the XY Planning Network – Michael Kitces and Alan Moore – through two petitions filed with the SEC. They’re far more ambitious in what they’re asking for than anything I’ve seen from our trade or professional organizations.

If the petitions get traction, it could bring about huge shifts in the regulatory playing field for fiduciary advisors and Wall Street – and benefit financial consumers most of all.

One of the XYPN petitions asks the SEC to greatly expand on its 2018 proposal to limit what brokers and registered reps are allowed to call themselves if they continue to refuse to register as RIAs and avoid bringing themselves under the fiduciary regulatory structure. That 2018 proposal suggests (but doesn’t mandate) that brokers be forbidden to describe themselves using the terms “advisor” or (the SEC’s quirky spelling) “adviser.” The petition notes that the SEC, in response to litigation from the Financial Planning Association back in 2005, had proposed to go further, and require anyone holding themselves out as a “financial planner,” providing “financial planning services,” or delivering a financial plan to their customers, be required to register as an RIA.

Of course, this was never finalized. Then came Reg BI, in 2019, where the Commission decided that adopting a separate rule restricting these terms was unnecessary.

The petition is asking the SEC to prohibit any title that suggests to the consuming public that the broker or rep is acting primarily in an advice capacity – until and unless that broker or rep registers as an RIA and puts him/herself under the obligations of a fiduciary standard.

This first petition also touches on dually-registered individuals, recommending that, if they hold themselves out as advisors, they be required to disclose precisely when their work as an advisor ends and their efforts to effect a sale begins – something that is far from clear in current client engagements.