Monday, October 29, 2018

Hiring Great Talent from University Personal Financial Planning Programs: Keys to Success

With competition for talent in financial planning at all-time highs, here's some observations for financial planning and investment advisory firms in search of great new talent.


First, everyone wants advisors with 2-3 years of experience. But, there just are not that many experienced advisors out there ... that are willing to change jobs, at least. You may get lucky, or you could be looking for months, if not years, for a lateral hire.

And, in my own experience, as a principal in a fee-only RIA firm, many of those who move from a "sales" culture to a "fiduciary" culture don't make the transition; within six months the firm dismisses them. Some can and will make the transition; some will not. Be cautious in attempting to "retrain" someone who comes from a distinctly different firm culture.

Be certain to also reach out to University programs. Most of us maintain connections with our graduates. While not many desire to migrate from one firm to another, on occasion we receive inquires from our alumni seeking to do just that. Email:


It has been my experience that good talent from leading undergraduate degree programs in Personal Financial Planning can greatly assist firms to grow. And, you get to train them to fit best with your firm.

Here are some keys to success, in terms of hiring great talent from university programs:

1) Plan ahead.

The best students have jobs in place 6 months or more before they graduate. Advertise your jobs and internships 9-12 months ahead of the hire date, if at all possible.

2) Hire a summer intern.

Test the person out. Give them projects to do in your firm. Have them sit in on (at least some) client meetings and take notes. Have them learn a major software program (CRM or PMS or Financial Planning). This is a low-cost way to test out talent.

Some of the best and brightest students actually undertake internships during their sophomore-to-junior year. They don't yet know a lot about financial planning, but they can be really good at tackling projects around the office. And you have a "leg up" on securing them for another internship the next summer, and then a permanent position. Some summer interns also turn into part-time (often remote) workers.

At Western Kentucky University, about 80% (significantly above the national average of about 57%) of our students who do internships get offers from their firm for full-time employment. We attract a lot of honors students, and high-GPA students, to our Personal Financial Planning Track (B.S. Finance) program (which is housed in an AACSB-accredited business college - which is tough to get into). Hence, we have a highly talented pool of students to choose from.

The best students receive some great internship offers (as to total compensation and benefits). Other students receive compensation that is enough to afford them to live reasonably in the internship location. (We don't encourage any students to take unpaid internships.)

Some university programs have internships "for college credit." Western Kentucky University does, but few students do this - as there are other classes that more than fill up their 120-semester-credit-hour requirements for graduation.

To let us know you have an internship available, please email me:

3) Have a clear career path.
Here is just one possible type of path. Of course, each firm will have roles that suit its client services dynamics and needs.

A) Client services assistant or paraplanner or advisor assistant. Do the inputs, gather data, formulate the plan - using Excel and/or financial planning software. Confirm or schedule client appointment. Learn the software and systems and procedures. Take notes during client meetings, and input notes and action steps after meetings. Undertake a great many financial plans (working with senior or junior advisors). After a few months, present a small portion of a plan during a client meeting, under supervision.

How long should this phase last for? For about 1-2 years. Work them hard - to secure licenses, then CFP certification. Work 45-55 hours a week, as well. Less hours until CFP exam is passed, and then more hours after that.

B) Junior advisor - serving some clients, under supervision, as soon as one year following graduation. Working 40-50 hours per week, for the next 3-7 years. Perhaps two levels of this. In the second level, more vacation time might be provided.

C) Senior advisor - 4-8 years following graduation. Taking on full responsibility for clients, of all types. And being assisted by assistants / para-planners / junior advisers.

D) Path to ownership. Could be through an ESOP or through a "junior principal" or "junior partner" buy-in. But the path should be well-defined.

There are many ways to structure career paths, and jobs / job descriptions. Many ways to build "teams." The foregoing is just one way. Practice management consultants can help you build career paths to fit what your firm does for its clients.

3A) Worried about hiring a person, then seeing them depart with clients? Here's a way to remove that worry - and which is fairer to the firm, their advisers, and clients (and without the need for litigation).

It's a legitimate concern, for many firms. Training someone, then seeing them depart with valued clients of the firm.

I often see firms who try to protect themselves via non-solicitation agreements, trade secrets covenants, and non-compete agreements. Yet, I often read that most advisors who depart firms take 50% to 80% of their clients with them. The fact of the matter is, non-solicitation agreements don't bar general solicitation efforts, and can often easily be avoided.

I have a solution. I used it in a prior firm I was associated with, with great success. It is a contract that states:

  • If the adviser departs a firm, the adviser compensates the firm by paying to the firm a portion of the income received from the clients who follow that client, over a 5-year period, as follows:
    • If the client was an existing client of the firm, and given to the adviser, the adviser pays 2x the annual revenue, spread over 5 years. In other words, quarterly payments (if billing occurs quarterly) of 40% of the income received from that client.
    • If the client was secured by the efforts of both the firm and the adviser (as most clients are), then the pay is 1x annual revenue. Same terms, but payment is 20% of the income received, per quarter, for 5 years.
    • If the client was brought to the firm by the adviser (such as when the adviser joined the firm), then no payment is provided.
  • Likewise, for clients who choose to stay with the firm, and for clients secured with the efforts of both the adviser and firm, then the firm pays the adviser 1x the revenue, over five years.
  • In either instance, if (for clients who choose to leave with the adviser) the client departs the adviser subsequently, payments cease at that time. Likewise, for clients the firm retains, if the client departs the firm subsequently, payments end.
  • The payments increase or decrease with the actual revenue secured from each client relationship. Whether AUM goes up, or down, for each client - it does not matter. Even when wealth is inherited.
  • Independent audit requirements exist, which either party may implement at their option, and at their own expense. If a material discrepancy is found by the auditor, the auditor's fees are then charged to the aggravating party. Often, another adviser I in the community can be agreed upon to do the audits.
4) Structure a great training program for new advisers.

Have every adviser in the firm train new advisers / para-planners in one specific area. Know what training should occur, and when. Map out the training schedule. Identify the skills, set of knowledge, to master. Formulate projects that emphasize mastery of those skills and concepts.

Have new advisers work with several different junior/senior advisors. I often tell students that they should focus upon picking up the best traits, characteristics, phrases to utilize, and approaches - from all of those in the firm they are privileged to work with.

5) Hire for quality ... and soft skills matter.

As does the ability to take personal responsibility for their own actions, working well in teams, and being proactive with completing work assignments and securing new ones.

And new advisers should possess a commitment to lifelong learning.

We stress at Western Kentucky University all of these - including the need to tackle projects without being "spoon-fed" the material, by doing research online (and otherwise) when confronted with an issue or knowledge gap.

And we stress the need to engage with others - smiling, greeting, firm handshakes, the ability to initiate and start a conversation, great listening skills, empathy skills, and presentation skills. The ability to secure, and maintain, relationships with others. We do a great deal of in-class, and out-of-classroom, projects to foster the development of these all-important skills, and the development of emotional intelligence.

Some of our top students are recruited into our Center for Financial Success - where they further develop their counseling skills by providing peer-to-peer basic financial counseling to other students at our university. Visit to learn more about the Center for Financial Success. To see the current students who have been selected for this honor and who are currently working as peer counselors, please visit: Students typically work 10-20 hours per week in the Center, and are paid. It costs about $2,500 to $4,000 each academic year, for each student who is hired; but it is a great experience - and these students graduate with a skill set strongly desired by employers today.

To support the Center, or WKU's Personal Financial Planning program, or to otherwise connect with us, please visit:

We also encourage our students acquire leadership experience - by becoming a leader of a student or other organization, leading team projects, etc. Because, eventually, our graduates will lead teams, and perhaps assume leadership roles within firms.

If you hire for quality, the expertise will inevitably follow as greater knowledge and experience is acquired.

6) New graduates are usually willing to leave their hometown and go elsewhere (and they often prefer this).

I caution students to try to land jobs that are no greater than an 8-12 hour drive away from home. That way if a family emergency happens, someone can hop in a car. Or, if airports align right, cheap airfares are available for those quick long weekend trips home.

(Fortunately, WKU graduates land jobs from Kansas City to Omaha to Minneapolis to Chicago to Detroit to Pittsburgh to Washington DC metro area and then down through Virginia, and Carolinas and Georgia to Orlando, Florida, and then over through the Deep South to Houston, then Dallas, and up to St. Louis ... and all points in between. It is nice to be "centrally located" and within a days' drive of about 60% or so of the U.S. population.)

7) Connect with Personal Financial Planning Degree Programs.

We encourage our students to network.

On-Campus Presentations.

Our FPA Student Chapter executive committee chooses guest speakers to invite on campus each year. Typically there are six guest speakers each semester. If you desire to present at one of our student chapter meetings, please email me:

Do you have an in-person or virtual presentation that can help train the next generation?

I encourage practitioners to reach out to us with ideas for 55-minute presentations, on a specific area of expertise. For example, presenting a case study, such as: (1) how to address long-term care expenses via different types of solutions, such as LTCI, continuing care communities, other products, etc.; (2) advising a corporate client on how to best establish a qualified retirement plan; and (3) specific estate planning techniques.

Or training in empathetic listening, or tools to facilitate better engagement with clients and understanding their goals, aspirations, and motivations. Or training in how to best change client behaviors. (These skills are taught in all of our PFP classes.)

If you have ideas for a presentation, please email me: During the 2020-21 academic year, I will be teaching: 

  • Retirement and Employee Benefits Planning (approaching the subject from both the standpoint of the employer, as well as the standpoint of the employee);
  • Personal Financial Planning (foundational course for freshmen);
  • Estate Planning (includes basics of a comprehensive estate plan for a married couple with children, prenuptial agreements, business succession planning especially in the context of financial services firms, prudent investor rule, issues involving consumer credit and consumer privacy, detecting and responding to elder abuse, and transfer taxation);
  • Financial Plan Development (capstone course); and
  • Applied Investments (i.e., an introductory course, best described as: "how general business majors can better save and manage their 401k in order to achieve their lifetime financial goals earlier in life).

We also have courses, taught by other professors this coming year, in:

  • Insurance and Risk Management;
  • Investment Theory;
  • Portfolio Management;
  • Advanced Financial Planning (tax planning included); and
  • PFP Practice Management (financial planning and other software certifications, counseling skills enhancement, and securities licensing). All of our B.S. Finance (PFP concentration) students also take three corporate finance courses, and the wide-ranging business core curriculum you would expect from an AACSB-certified business college.

Would your firm be willing to host a short visit by a group of up to 9 students?

We often take students on day-long trips, or Fall Break muliti-day trips, to visit firms. Often we spend an hour at each firm, learning about whatever the firms want to say ... about their firm, about how they serve clients, what software they utilize, the culture of their firm, what a "day in the life of" various roles at the firm can be, tips for those still in college, tips for the first year at a firm, etc. (A few of the larger firms we visit have presentations that go for 2-3 hours and cover a more diverse range of topics, with multiple presenters.)

Our Fall 2020 field trips, subject to available funding and COVID-19 travel restrictions, will likely include: 

  • Fall break (early October) field trip to St. Louis and Cincinnati
  • Late October field trip to NAPFA Conference in Atlanta, and to visit firms
  • Day-long field trips in September and early November to:
    • Nashville, Franklin, and Brentwood TN
    • Louisville, KY
    • Lexington, KY
If your firm would like to host a visit from our students (typically not more than 9 students at a time), please email me:

To generally connect with our program, you call also visit:

8) Consider Job Shadowing, Informational Interviews, and Mentoring.

Job Shadowing (Externships). We encourage our students to seek out a "job shadowing" for a day (or longer), either during the semester or during any breaks. It is so vitally important that students have some form of experience like this, so that they can "see themselves" working as a personal financial advisor. And, when they do, they become even better students!

Informational Interviews. We also suggest that our students just reach out to interview practitioners to find out what they love, and don't especially love, about their careers, and to learn tips on how to succeed. These are short interviews, usually lasting 30 minutes or more. We encourage our students to write down 10 questions before they meet with practitioners, and to take notes during the interview.

Become a Mentor. There are formal mentoring programs through both FPA and NAPFA. Or, if you would like to be connected with one of our students, to mentor, just email me at: Mentoring need not take a great deal of time. In fact, I suggest that mentoring take the form of phone calls, or FaceTime/Skype chats, lasting no longer than 45 minutes, 2 or 3 times a year. I know, from speaking with several of my students and former students, that for some students having a mentor can be life-changing!

9) Network with Students at Conferences.

Our students attend conferences, including those of FPA and NAPFA and TDAI. Including FPA local chapter meetings. Including other conferences when they come within a reasonable driving distance (to keep our travel costs down).

Better yet, sponsor a student to attend a conference. A national 3-day conference usually runs about $650 per student (with student registration fees, paid hotel room, and shared 15-passenger van cost to travel to the conference). (But even a partial sponsorship can go a long way.) Then, get to know the student you sponsor, at the conference. Mentor them. Professors can team you up with students who might be a good fit for your firm. And often the very best students are more likely to attend conferences - especially in their junior year.

Both practitioners (averaging over 80 at our first two Symposiums) and our students attend our own WKU Personal Financial Planning Symposium - scheduled for early November 2020 (COVID-19 permitting), at the Knicely Center, Bowling Green, KY. We provide ample opportunity to network, and we have our students spread out among all of the tables. Email me at if you would like to be notified when the Symposium is formally announced.

10) Are you hiring salespeople? Or advisers?

Everyone sells themself. And everyone should be networking to seek clients for the firm. To this end, we teach practical networking skills - and we also encourage our students to take a popular class in "Personal Selling" as one of their electives.

But not everyone wants to sell investment or insurance products. At WKU our graduates want to work as financial planners and investment advisers. Most desire to work for firms that possess a fiduciary culture. (This does not mean that the firm is necessarily fee-only, however).

What we don't desire our graduates to encounter is being hired with the expectation that "95% won't succeed" or "Only 25% will succeed" after 5 years. Sorry, but we want our graduates to have great careers. Don't hire WKU's graduates if your business plan is to "weed them out" and "only keep the minority that can really sell."

Growing professional firms hire talent, train them right, and hold onto them. We want our graduates to have a 95% or better probability of succeeding at your firm, by joining firms that have that professional culture.

If you want to hire product salespersons, please talk to WKU's marketing professors, instead.

11) The most "valuable" hire is a rainmaker who also possesses exceptional project management skills.

These are rare, but they exist.

Every year I have a handful of students (2-4, out of 30-40 graduates) who will be the ones who have that natural ability to connect with people and bring in business. We identify these students early on, and seek to culture - rather than suppress - these talents. These students may not always have the highest GPAs (but they will still be generally high), but they will have the greatest long-term impact in your firm. If your firm needs to grow, seek out these "5-10 percenters" - and be prepared to pay well for them. They are very valuable!

If, however, your firm already has more work than it can handle, hire those who can write exceptionally well, relate to clients well, and undertake presentations well. After time they too can become "rainmakers" - as they can be cultivated on ways to network within the community and generate clients, over time. Others might be exceptional at writing articles for posting on social media, or even through local or national press, or even writing books.

12) Your job posting goes university-wide.

But the financial planning professors will ensure that the PFP students see it. Universities have policies stating that all job opportunities, and internship opportunities, are posted university-wide. This could bring a lot of inquiries.

But the PFP professors, such as myself, will ensure to reach out to their students who they believe will be a good fit for your firm's needs. We will send out emails to students with job and internship opportunities, announce the opportunities in our classes, and even promote them via social media.

Just email me your job/internship description: I'll make certain it gets out to every student, and especially our Personal Financial Planning program students.

13) Have a great job description or internship description.

If you desire to see job or internship descriptions we've received from others, just email me, and I will forward some to you.

If you are in search of talent - interns or soon-to-be graduates - just drop me a line.

Email me at 


We are proud of the students we graduate.

Not only do they take all of the courses the CFP Board requires, but additional courses in counseling, software usage, advanced investment theory and portfolio management, and three corporate (business) finance courses. And a good dose of general business courses - from accounting to economics to marketing to management. Despite the intensive workload, the average student who graduates from our program as a cumulative G.P.A. significantly higher than the average graduate of our university.

And, we seek to graduate well-rounded students. Students who have expanded their comfort zones, who put away their phones and have meaningful conversations with others, and who possess the ability to connect with others / build relationships / maintain relationships. Students who understand how to work within teams, possess the skill of empathetic listening, and who have practiced counseling others.

We have students who are trained to be willing and able to tackle new challenges. Students who we know will work well in teams - because we train them in team dynamics, and give them lots of practice in different teams.

We graduate students who possess a great desire to assist their clients, in a highly ethical and professional manner. Our graduates know they are entering a profession where - each and every day - they get to help others.

Thank you! - Ron

Sunday, October 28, 2018

Lipstick on a Pig and Reg BI: The SEC Aids and Abets Fraud

I may be just an old country lawyer, but I know when someone puts lipstick on a pig.

When the DOL Rule was being proposed, FSI (and then SIFMA), the broker-dealer industry lobbying groups, proposed a "Best Interests" standard be adopted instead. Subsequently, FINRA - the broker-dealer self-regulatory organization (no, it does not represent, nor govern, the entire "financial industry" as its name suggests), endorsed the FSI/SIFMA proposal and put its billion-dollar war chest and lobbyists to work.

As I pointed out at the time, "SIFMA, FSI, and their members seek, with the blessing of their 'self-regulator' – FINRA – to re-define the very nature of the term “best interests.” See my prior blog posts, "FINRA's Illusionary 'Best Interests' Standard" and  "FINRA Seeks the Death of the Fiduciary's Duty of Loyalty."

And the broker-dealer lobbying efforts paid off.

First, they waited for new leadership in the guise of SEC Chair Jay Clayton, a lawyer who has long represented the interests of Wall Street's broker-dealer firms and investment banks, including Goldman Sachs, UBS, Bear Stearns, Deutsche Bank, and many others. Since he is age 52 currently, everyone knows where Chair Clayton will return after his stint at the SEC is up - back to representing Wall Street. The SEC has long had a problem with its revolving door.

Then, through their extensive lobbying efforts, the broker-dealers firms' lobbying organizations were able to get the SEC to propose "Regulation BI" a.k.a. "Regulation Best Interest" in early 2018. It should have been called "Regulation B.S." instead. The language tracks that found in the proposals previously advanced by FSI, SIFMA, and then FINRA.


It is an abomination, plain and simple. In the language of Release the SEC talks of broker-dealers possessing a new standard of conduct that requires them to "act in the best interests of the retail customer at the time a recommendation is made without placing the financial or other interest of the broker-dealer or natural person who is an associated person making the recommendation against the retail customer."

But the language of the proposed Regulation itself - which is what matters - falls far short of such a standard.


 The Regulation contains a "safe harbor" - in essence an exception (in paragraph "b" below) - that swallows the rule set forth in paragraph "a."

     § 240.15l-1 Regulation Best Interest.

        (a) Best Interest Obligation.

              (1) A broker, dealer, or a natural person who is an associated person of a broker or dealer, when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer, shall act in the best interest of the retail customer at the time the recommendation is made, without placing the financial or other interest of the broker, dealer, or natural person who is an associated person of a broker or dealer making the recommendation ahead of the interest of the retail customer.

MY COMMENT: The foregoing is strong language. But the next paragraph obliterates the above. It guts it, by creating a "safe harbor" that is nothing more than "suitability" enhanced with a few additional disclosure obligations.

             (2) The best interest obligation in paragraph (a)(1) shall be satisfied if:

                     (i) Disclosure Obligation. The broker, dealer, or natural person who is an associated person of a broker or dealer, prior to or at the time of such recommendation, reasonably discloses to the retail customer, in writing, the material facts relating to the scope and terms of the relationship with the retail customer, including all material conflicts of interest that are associated with the recommendation.

MY COMMENT: We know that disclosures don't work. Consumers don't read them. Even in those rare instances where they do, they don't understand them.

                    (ii) Care Obligation. The broker, dealer, or natural person who is an associated person of a broker or dealer, in making the recommendation exercises reasonable diligence, care, skill, and prudence to:
                         (A) Understand the potential risks and rewards associated with the recommendation, and have a reasonable basis to believe that the recommendation could be in the best interest of at least some retail customers;
                          (B) Have a reasonable basis to believe that the recommendation is in the best interest of a particular retail customer based on that retail customer’s investment profile and the potential risks and rewards associated with the recommendation; and
                          (C) Have a reasonable basis to believe that a series of recommended transactions, even if in the retail customer’s best interest when viewed in isolation, is not excessive and is in the retail customer’s best interest when taken together in light of the retail customer’s investment profile.

MY COMMENT: The above language uses an old trick, that broker-dealers often use similarly in their advertising. It does not require a duty of due care. It only requires the broker-dealers and their registered representative to "believe" that they possess a "reasonable basis" for their recommendations. In essence, the duty of care remains "suitability."

                  (iii) Conflict of Interest Obligations.
                          (A) The broker or dealer establishes, maintains, and enforces written policies and procedures reasonably designed to identify and at a minimum disclose, or eliminate, all material conflicts of interest that are associated with such recommendations.

                          (B) The broker or dealer establishes, maintains, and enforces written policies and procedures reasonably designed to identify and disclose and mitigate, or eliminate, material conflicts of interest arising from financial incentives associated with such recommendations.

MY COMMENT: There is nothing in the "Conflicts of Interest Obligations" section above that mandates that the broker-dealer avoid, or even minimize, conflicts of interest. "Policies and procedures" must exist within the firm, but no substantive obligations are imposed. Moreover, the use of the language "at a minimum disclose" is nothing but a distortion of "best interests" requirement under state common law - i.e., the fiduciary duty of loyalty - based upon an incorrect interpretation of SEC v. Capital Gains Research Bureau.


I submitted extensive comments to the SEC outlining my objections. My main objections to Reg BI were summarized in my comment letter, as follows:

  • The term “best interests” is an expression of the fiduciary standard.
  • The Commission’s proposed Regulation BI exacerbates, rather than lessens, consumer confusion between the sellers of products and the providers of advice.
  • Should it adopt Regulation Best Interests, the Commission would open itself up to the charge of aiding and abetting fraudulent conduct.
And, I pointed out this prophetic writing by Professors Angel and McCabe:
  • “The relationship between a customer and the financial practitioner should govern the nature of their mutual ethical obligations. Where the fundamental nature of the relationship is one in which customer depends on the practitioner to craft solutions for the customer’s financial problems, the ethical standard should be a fiduciary one that the advice is in the best interest of the customer. To do otherwise – to give biased advice with the aura of advice in the customer’s best interest – is fraud. This standard should apply regardless of whether the advice givers call themselves advisors, advisers, brokers, consultants, managers or planners.” James J. Angel, Ph.D., CFA and Douglas McCabe Ph.D., Ethical Standards for Stockbrokers: Fiduciary or Suitability? (Sept. 30, 2010).

A broker-dealer and its registered representative can represent securities issuers/owners and product manufacturers (as intermediary, or as a dealer in securities), or it can represent the client. It is impossible to do both.

As was well-known in the early case law: "The principle is undeniable that an agent to sell cannot sell to himself, for the obvious reason that the relations of agent and purchaser are inconsistent, and such a transaction will be set aside without proof of fraud.” Porter v. Wormser, 94 N. Y. 431, 447 (1884).

In an early speech by the Louis Loss, for long the leading scholar on the federal securities law, presented at a time when he served the Commission, Professor Loss stated:
  • [A]s an eloquent Tennessee jurist put it before the Civil War, the doctrine ‘has its foundation, not so much in the commission of actual fraud, but in that profound knowledge of the human heart which dictated that hallowed petition, ‘Lead us not into temptation, but deliver us from evil,’ and that caused the announcement of the infallible truth, that ‘a man cannot serve two masters.’ "
Address entitled “The SEC and the Broker-Dealer” by Louis Loss, Chief Counsel, Trading and Exchange Division, U.S. Securities and Exchange Commission on March 16, 1948, before the Stock Brokers’ Associates of Chicago. Louis Loss later became the author of the leading treatises on securities law.


In its 1940 Annual Report, the U.S. Securities and Exchange Commission noted:
  • If the transaction is in reality an arm's-length transaction between the securities house and its customer, then the securities house is not subject' to 'fiduciary duty. However, the necessity for a transaction to be really at arm's-length in order to escape fiduciary obligations, has been well stated by the United States. Court of Appeals for the District of Columbia in a recently decided case: ‘[T]he old line should be held fast which marks off the obligation of confidence and conscience from the temptation induced by self-interest.  He who would deal at arm's length must stand at arm's length.  And he must do so openly as an adversary, not disguised as confidant and protector.  He cannot commingle his trusteeship with merchandizing on his own account ....
Seventh Annual Report of the Securities and Exchange Commission, Fiscal Year Ended June 30, 1941, at p. 158, citing Earll v. Picken (1940) 113 F. 2d 150.

In 1963, in its Special Report on the securities industry, the SEC also noted that:

  • [The SEC] has held that where a relationship of trust and confidence has been developed between a broker-dealer and his customer so that the customer relies on his advice, a fiduciary relationship exists, imposing a particular duty to act in the customer’s best interests and to disclose any interest the broker-dealer may  have in transactions he effects for his customer … [BD advertising] may create an atmosphere of trust and confidence, encouraging full reliance on broker-dealers and their registered representatives as professional advisers in situations where such reliance is not merited, and obscuring the merchandising aspects of the retail securities business … Where the relationship between the customer and broker is such that the former relies in whole or in part on the advice and recommendations of the latter, the salesman is, in effect, an investment adviser, and some of the aspects of a fiduciary relationship arise between the parties.

1963 SEC Special Study.

The SEC now, with Regulation BI, ignores its own warnings.


In the United States, common law generally identifies nine elements needed to establish fraud: (1) a representation of fact; (2) its falsity; (3) its materiality; (4) the representer’s knowledge of its falsity or ignorance of its truth; (5) the representer’s intent that it should be acted upon by the person in the manner reasonably contemplated; (6) the injured party’s ignorance of its falsity; (7) the injured party’s reliance on its truth; (8) the injured party’s right to rely thereon; and (9) the injured party’s consequent and proximate injury.

What FSI, SIFMA and FINRA have done is to seek to commit a fraud, upon consumers of the investment securities and products that their members sell. How?
   (1) The broker-dealers undertake a representation as to a certain "fact" - i.e., that broker-dealers act in the "best interest" of their client.
   (2) The representation that brokers will act in the "best interest" of their clients, under Reg BI - should it be adopted, will be false - as the "safe harbor" imposes no fiduciary duty of loyalty. For centuries the term "best interests" has been equated, under the common law and in the minds of consumers - with the fiduciary duty of loyalty.
   (3) Certainly the representation made will be a material one - i.e., it will be considered by consumers in deciding whether to engage, and place trust and confidence in, their brokers.
   (4) FSI, SIFMA and FINRA know that brokers won't actually act under in the "best interests  of their customers, as that term has been known and understood for centuries. So, they seek to avoid this element of fraud by an old trick - if you don't like the English language and its meaning, try to force down a new meaning. Even if, in the process, you undermine trust in our society.

And the remaining elements of fraud will exist, as well, should Reg BI be adopted by the SEC, and then used by broker-dealers to tout their status as those who act in the "best interests" of their customers, when in fact they act in their own best interests - with free reign to sell more expensive products that pay them more, and reward consumers less.


Whenever fraud is promulgated, it must be confronted, head on.

The SEC is the decision-maker here. Once thought to be one of the most effective of our government agencies, over the past few decades it has been utterly and totally captured by Wall Street. Yet now it seeks to aid and abet fraud, and in so doing it ignores its own prudent warnings. The SEC has been tricked, by tricksters.

Only an outcry - by consumers and also by professionals who truly do act in the best interests of their clients - would likely change the SEC's current path.

I believe brokers should be permitted to sell. But they should not be permitted to hold out as trusted confidents - whether by using phrases such as "we act in your best interests" (or "we seek to act in your best interests"), or by using titles that denote a relationship of trust and confidence, or by otherwise disguising the merchandising aspect of their role.

But if brokers desire to offer investment advice - and financial planning advice - then they should do so under a bona fide fiduciary standard. In which they act with the requisite expertise (i.e., under the fiduciary standard of due care). In which they act in the best interests of their clients (i.e., under the fiduciary standard of loyalty). And in which they act with full candor and honesty (i.e., under the fiduciary standard of utmost good faith).

The SEC, with its Reg BI (and also Form CRS - a relationship summary that further obscures the distinctions between "sellers" and "trusted advisers"), needs to return to the drawing board. It needs to abandon Reg BI.

The SEC needs to act with integrity, to protect both the capital markets (for the erosion of trust will weaken them) and American consumers (who do not deserve to place their trust in "financial consultants" / brokers, only to have that trust betrayed).

The SEC needs to stop its own actions, in which it may aid and abet fraud.

The SEC should act to restore its own standing as a heralded, independent agency, rather than act to throw consumers to the wolves as an arm of the broker-dealer industry.

I may be an old country lawyer, but I know what it smells like to be at the south end of a north-facing cow. And Reg BI has that same smell.