The Distinction Between a Financial Planner, Investment Advisor and Broker/dealer
| Publication year | 1986 |
| Pages | 211 |
| Citation | Vol. 15 No. 2 Pg. 211 |
1986, February, Pg. 211. The Distinction Between a Financial Planner, Investment Advisor and Broker/Dealer
The financial planning industry has recently experienced tremendous growth.(fn1) As a result, lawyers may be asked to give advice about the regulation of persons, often calling themselves "financial planners," who give various forms of financial advice to their clients. Someone who gives financial advice to clients may be classified as an investment advisor or a securities broker or dealer, all of whom are subject to extensive regulation under federal and state securities laws. Since financial planners are not so regulated,(fn2) the distinction is important.
This distinction is particularly significant in view of the adverse consequences which may result when a financial planner engages in activities which come within the definitions of investment advisor and broker and dealer without registering as such with the appropriate regulatory authorities. Under the Securities Exchange Act of 1934, brokers and dealers are subject to regulation by the Securities and Exchange Commission ("SEC").(fn3) In addition, virtually every state has laws and a regulatory authority which regulate brokers and dealers. Investment advisors are regulated by the Investment Advisers Act of 1940 ("Advisers Act"),(fn4) the SEC and the laws and regulatory authorities of approximately one-half of the states.
The purpose of this article is to alert the practitioner to the regulatory triggers in this area. The scope is restricted to an examination of federal and Colorado laws as they define investment advisors, brokers, dealers and their representatives.
A financial planner provides a master plan for all aspects of a person's finances, including securities, real estate, tax planning, savings and insurance. There are three basic types of financial planners. The first is the "fee-only" type who charges a fee for the development of the financial plan, but does not recommend specific investment products. The second is the "commission-only" type who charges no fee but collects a commission on investment products sold or recommended to the client. Finally, there is the "fee-commission" type who charges a fee for providing a financial plan as well as a commission for the sale or recommendation of investment products to the client. Since financial planners are not regulated, no statutory definition of the term "financial planner" exists; the foregoing loose definition and categories developed historically.
The term "investment advisor" is defined under § 202(a)(11) of the Advisers Act as follows:
Any person who, for compensation, engages in the business of advising others, either directly or through publications or in writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports...
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