Should Brokers Be Able To Call Themselves Advisors? NASAA Says No
The organization that unites state securities regulators has made changes to its model rule of conduct for advisors and brokers, hoping to bring these more in line with the federal best interest standard set by the Securities and Exchange Commission. At the same time, the state-level group has taken aim at the brokerage industry’ s sweeping use of the term“ advisor” to describe broker job functions.
The North American Securities Administrators Association( NASAA) said that it amended its model rule to bring it in line with the federal agency’ s Regulation Best Interest, a mandate for broker-dealers to act in their clients’ best interest without conflicts when making recommendations.
NASAA’ s rule on dishonest or unethical business practices also prohibits potentially misleading uses of the titles“ adviser” or“ advisor” by broker-dealer agents. NASAA wants to stop firms and professionals from using the titles unless they are registered as RIAs or investment advisor representatives, says Amy Kopleton, who chaired the project( and who is currently the deputy bureau chief of the New Jersey Bureau of Securities).
While NASAA has no enforcement powers, it sets standards that state regulators generally adopt in their oversight of the securities industry. The amendments were at first significantly tougher, but outcry from the brokerage industry persuaded NASAA’ s project group to eliminate some requirements that exceeded those of Reg BI.
Kopleton says the association removed more prohibitive material to help broker-dealers more easily comply.“ The version that we have now pretty closely tracks the SEC’ s Reg BI, but not exactly,” she says.“ Our concern was that a lot of states don’ t have the toolbox for enforcing Reg BI, so they need this model.”
The regulation pertaining to the use of the“ advisor” title is aimed at ensuring proper licensing, she says.“ If a rep is using an advisor title without being licensed and acting as a fiduciary, it will be very confusing for investors.”
Knut Rostad, founder of the Institute for the Fiduciary Standard, calls the titling amendments“ a good step in aligning advice to legal responsibility. It makes sense that using the title‘ adviser’ or‘ advisor’ is tied to actual licensing requirements.”
While Reg BI also has an explicit prohibition on brokers and reps who use the title without RIA or appropriate registration, the SEC has not enforced the prohibition. The financial services industry has been closely monitoring the development of NASAA’ s model to prevent what it calls a fragmented, state-by-state regulatory approach that could create compliance problems for independent B-Ds and RIAs.
One industry group, the Financial Services Institute, has strongly advocated for incorporating Reg BI language into state rules to maintain consistency, arguing that uniform regulations benefit both investors and the industry.“ We continue to work with individual states to ensure alignment with national standards,” says Dale Brown, the institute’ s president, at FSI’ s annual conference.
“ What independent broker-dealers and advisor-reps don’ t want is a patchwork of rules that forces firms and practitioners to navigate a regulatory maze,” he says.
Since NASAA lacks direct control over individual state models, advocates for the financial services industry and investors alike will be closely watching how each state chooses to incorporate— or resist— this tougher standard.
“ If a rep is using an advisor title without being licensed... it will be very confusing for investors.”
— Amy Kopleton
Parham Nasseri, the president of regulatory compliance software firm InvestorCOM, thinks state-level regulation will be influenced by federal deregulatory trends.“ A uniform, nationwide regulatory framework would benefit both the industry and investors,” Nasseri says.“ Otherwise, firms must navigate inconsistent requirements— such as varying documentation rules— which can create regulatory arbitrage and market confusion.”
— Tracey Longo
MAY 2025 | FINANCIAL ADVISOR MAGAZINE | 13