Dually Registered Advisors Pose New Risk to Investors, Say Regulators
The SEC published its examination priorities for 2013 late last month,
and dually registered advisors were at the top of the list.
Recently, more and more financial professionals have taken to wearing two
hats, acting as investment advisors to some clients and broker-dealers
to others. This arrangement results in a hybrid practice, which blurs
the line between the investment advisor and broker-dealer industries and
enables the professional to earn money through both fees and commissions.
This “continued convergence,” however, is also the reason
dually registered advisors are being called a new and potentially potent
threat to investor safety.
“[These days] it is not uncommon for a financial professional to
conduct brokerage business through a registered broker-dealer that she
does not own or control and to conduct investment advisory business through
a registered investment adviser that she owns and controls, but that is
not overseen by the broker-dealer,” stated regulators in a Feb.
21 announcement. “This business model presents multiple conflicts.”
Regulators said dually registered advisors and their firms should expect
an SEC examination at some point in the coming year. In particular, examiners
will be reviewing:
- How dually registered advisors and their firms sort clients into advisory
or brokerage accounts;
- How dually registered advisors and their firms satisfy their suitability
obligations when making recommendations to clients;
- The financial incentives dually registered advisors and their firms may
have for making specific recommendations to clients; and
conflicts of interest are fully and accurately disclosed.
To learn why the
difference between an investment advisor and broker-dealer matters, read this. For additional information about the
SEC’s examination priorities for 2013, click here.
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