NASAA Investor Advisory: Financial Service Providers

May 1, 2013

The North American Securities Administrators Association ("NASAA") has posted: Investor Advisory: Financial Service Providers, which helps investors plow through the seemingly unending titles used by folks offering financial services. The Advisory helps investors distinguish among:

  • Broker-Dealer Agents
  • Investment Adviser Representatives
  • Financial Planners
Heath Abshure, NASAA president and Arkansas Securities Commissioner, comments in NASAA's press release,:

"With so many brokers and salesmen calling themselves ‘financial advisers,' or ‘investment consultants,' it is easy to see how investors might assume these individuals are licensed investment advisors," Abshure said. "That's one reason why NASAA continues to call on federal securities regulators to require all financial professionals providing investment advice to retail investors to be held to a high fiduciary standard."

Cassandra On Wall Street

For many years, I have warned investors against falling prey to the unchecked growth of titles that have expanded exponentially in the financial services arena.  Sadly, "better late than never" is a motto of far too much that passes for Wall Street regulation. In End Of An Error: Wirehouses, Financial Supermarkets, and Wall Street's Missteps, I cited to this 2009 quote of mine:

Too Many Titles

First and foremost, I call for the professionalizing of the role of all individuals providing financial services. It has all gotten too confusing for the average investor (and apparently for the befuddled regulators). We are amid an explosion of titles that suggests that all financial-service providers are well-trained and educated (and of similar expertise) to understand what they are recommending to investors. As recent history has sadly demonstrated, there are far too many con artists, fraudsters, scamsters and financial morons out there masquerading as know-it-alls.

Open a newspaper or magazine, plow through online research or listen to those touchy-feely TV commercials, and you are immediately bombarded with titles: stockbroker, registered representative, financial planner, investment adviser, account manager, financial representative, financial associate. Some of those titles are real, but others are fanciful. We don't need fanciful in this day and age.  And we certainly need less confusion when trying to invest our savings or arrange for our old age.

We must implement a comprehensive system that certifies competency and ensures that consumers are not overwhelmed by professional designations. It is high time to separate mere teleservice operators from individuals qualified and certified to answer sophisticated financial questions and provide competent advice. While there may be a place for both rookie cold-callers and skilled financial planners on Wall Street, consumers must know which is which when dealing with brokerage firms, investment advisers, financial planners, banks and insurance companies.

The Financial Services Professional (FSP)

In furtherance of that approach, I urge the implementation of a uniform licensing model. For starters, most financial professionals should be required to pass an entry-level examination that tests for basic knowledge of the building-block financial products and the regulations governing their sale. You pass that test, and you are entitled to bill yourself as a Financial Services Professional (FSP). . .

Not only does the End Of An Error article demonstrate that there are those of us in the reform movement who have spotted problems long before they became fashionable among regulators, but it further underscores the need for regulators to listen to the many voices that agitate for substantive reform and offer pragmatic solutions.  

NASAA Checklist

Finally, pay very, very careful attention to this excellent checklist in the NASAA Investor Advisory:

Questions to ask:

• What services do you offer?
• What licenses, registrations, qualifications, and experience do you have to offer these services?
• Are you a broker, investment adviser, financial planner or any combination thereof?
• Can you provide me with your CRD number, and, if not, why not?
• Are you required to always act in my best interest?
• Do you have any potential conflicts of interest when providing me with investment advice?
• How are you paid? Explain commissions or fees you may charge.

These questions are not exhaustive, and the answers will likely raise additional questions you will want answered
before you decide to entrust the professional with your money. You may want to ask for the answers in writing.
Be suspicious if your investment services provider:

• Refuses to provide you with his or her CRD number.
• Cannot explain to you how a proposed financial product is intended to make money.
• Suggests that you take out a mortgage or reverse mortgage on your home in order to invest.
• Recommends that you cash out current holdings (such as life insurance or retirement accounts) to fund other investments.
• Ignores your financial objectives.
• Pressures you to invest today or tells you to keep the investment secret.