LITMIR.BIZ

      • Does the professional hold himself out as an investment adviser or financial planner? • Is the investment advice reasonably related to the professional services rendered?

      • Is the professional’s fee for investment advisory services structured differently from the schedule for professional services?

      CARLA CPA HAS A regular accounting practice and also advertises that she is available for financial planning services. She makes a detailed evaluation and comparison of investment alternatives. She may recommend specific no-load funds or even direct her client to an investment adviser. She is well known for her investing expertise and clients will frequently ask her questions about trading specific securities.

      Question: Should Carla register?

      Answer: Yes. She is in the business of giving advice about securities, and she is receiving compensation. Furthermore, she holds herself out as a planner. Accounting firms have only recently begun to take this law seriously. Consequently, now more and more accountants are registering, realizing they can no longer rely on the solely incidental to exclusion.

      IN SOME CITIES it is becoming a common practice for local law firms to serve as trustees and provide investment advice to the trust.

      Question: Are these attorneys, who are acting as trustees, providing investment advice solely incidental to their profession as attorneys?

      Answer: No. Without even looking at the conflict of interest issues, there is no question that these law firms would also need to be registered investment advisers, as this activity is not incidental to the practice of law.

      CHARLIE WANTS TO give stock tips and general investment advice over the telephone using a 900 number.

      Question: Does he have to register as an RIA?

       Answer: If Charlie can fit his activities into the criteria listed for the publisher’s exclusion, he does not have to register. However, if he is giving individual advice, he will need to be an RIA or affiliated with one.36

      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.