The Financial Planning Association is urging SEC Chair Mary Schapiro to clarify and restrict the scope of authority of the Financial Industry Regulatory Authority related to financial planning services.
The FPA sent a letter to Schapiro last month in response to an enforcement action that FINRA took against a broker-dealer and stockbroker for advertising and sales violations involving misleading financial plans.
On August 6, FINRA announced it had fined Ameritas Investment Corporation, a dually registered broker-dealer and investment adviser, $100,000 and suspended and fined one of its brokers in connection with the sale of unsuitable investments and related violations. The broker, who was not registered as an investment adviser representative, allegedly pitched misleading financial plans to some 220 customers. The broker then encouraged customers to refinance their homes or take out home equity loans to pay for the college and retirement planning recommendations, putting their homes at risk.
"FINRA has long warned against the problems of brokers engaging in questionable mortgage practices and, in particular, investing the proceeds in annuities or securities," said FPA president Richard Salmen. "As the primary regulator of Wall Street, we commend FINRA for cracking down on unsuitable sales of investment products within its regulatory authority. However, due to FINRA's absence of legal authority to regulate broad financial planning activities, and to its inability to impose a fiduciary standard that would enhance investor protection, we believe this task is best carried out by the SEC."
The SEC, Salmen explained, directly regulates investment advisers, including financial planners who recommend securities, as fiduciary advisers. Investment adviser rules provide stronger investor protection through greater transparency of conflicts of interest and higher standards of professional conduct. Stockbrokers are subject to FINRA sales rules that require them to ensure that brokerage transactions are suitable investments, but they do not have to fully disclose all conflicts of interest or act in a fiduciary capacity that places the client's best interests ahead of the broker's, according to the FPA.
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