Advice vs opinion: legal boundaries in portfolio assistance?

[kmiklas]

Hello Everyone,

I am not licensed.

A friend asked me to review her portfolio, and her broker is really giving her the run-around. She's got funds on her books that are making no money--but she's still being hit with a sizeable maintenance fee. Speaking of fees, they're hitting her with other generous fees. She's got old equities that are no longer listed--but her broker/dealer won't let her take them out of her portfolio--they keep dodging her. They've got a lot of her money sitting in ca$h...

Pretty bad situation. She's older, "not good with technology," doesn't even own a smartphone, asked me for help, and offered to pay $ for my assistance.

My "opinion" would be:
STEP 1: open an account at a bigger, more reputable investment house
STEP 2: move all her sh!t there
STEP 3: Tell this B/D to go pound salt
--> Here I'm not really giving investment advice, just portfolio advice... so I think I am OK helping her? The next step definitely smells like a fiduciary and/or financial advice...
STEP 4: ...probably ladder most of her holdings in the nice safe Treasury bond markets, employ compound interest on short-term Bills, and print some easy risk-free money with these nice fat rates while they last.

I expect there to be bit of resistance, but I'd be there to advocate for her (for a fee, of course )

Can I legally "help" (NOT "advise") her to do this?

Will I get a polite letter from some agency if I step up, charge her an hourly rate, and help her extract her holdings into another account?

Tyvm, Keith

 

[schizo]

Hello Everyone,

I am not licensed.

A friend asked me to review her portfolio, and her broker is really giving her the run-around. She's got funds on her books that are making no money--but she's still being hit with a sizeable maintenance fee. Speaking of fees, they're hitting her with other generous fees. She's got old equities that are no longer listed--but her broker/dealer won't let her take them out of her portfolio--they keep dodging her. They've got a lot of her money sitting in ca$h...

Pretty bad situation. She's older, "not good with technology," doesn't even own a smartphone, asked me for help, and offered to pay $ for my assistance.

My "opinion" would be:
STEP 1: open an account at a bigger, more reputable investment house
STEP 2: move all her sh!t there
STEP 3: Tell this B/D to go pound salt
--> Here I'm not really giving investment advice, just portfolio advice... so I think I am OK helping her? The next step definitely smells like a fiduciary and/or financial advice...
STEP 4: ...probably ladder most of her holdings in the nice safe Treasury bond markets, employ compound interest on short-term Bills, and print some easy risk-free money with these nice fat rates while they last.

I expect there to be bit of resistance, but I'd be there to advocate for her (for a fee, of course )

Can I legally "help" (NOT "advise") her to do this?

Will I get a polite letter from some agency if I step up, charge her an hourly rate, and help her extract her holdings into another account?

Tyvm, Keith

“This is not financial advice” doesn't mean shit (emphasis mine) if someone is receiving compensation without being a licensed financial advisor.

Oftentimes the “this is not financial advice” disclaimer is attached to financial advice, advice both offered up for free and advice given after receiving compensation, in an effort to act as a shield against the Investment Advisers Act ("IAA" or “the Act”).

Unless an individual is receiving compensation for financial advice, the IAA should not be of worry. If, however, an individual is offering up financial advice in exchange for some form of compensation, these 5 magical words cannot shield them from the IAA. The IAA lists specific exceptions to the act and nowhere under those exceptions are the “this is not financial advice” disclaimer. Contrary to common belief, you cannot waive federal law.

Let’s say, for example, an individual has 30 people paying them $50 a month for “stock market education,” or stock market watchlists, or other stock market related advice. Before providing their services, the individual announces that any information discussed or communicated in exchange for the compensation is not financial advice and should not be treated as such. As nice as those words sound, the IAA includes no such waivers or exceptions for individuals in violation of the Act that tell their clients they are not receiving financial advice. In that scenario, the individual is providing financial advice for compensation to 30 clients. In theory, that person could be fined $5,000 per client and sentenced to 5 years in federal prison per client. This totals $150,000 in fines and a sentence of 150 years in prison. This is not including the other potential SEC civil liability, or other personal liability claims that could be brought against them.

As just mentioned, personal liability claims are something that an unregistered financial adviser is at risk of. Think, a group of clients receiving financial advice or "education" in exchange for compensation. If any one of those client loses half of their portfolio (or any sort of loss) during an unexpected market crash or other event, they, and any other client affected, has the right to sue the unlicensed individual. In fact, the unlicensed individual that accepted the compensation runs the risk of a potential lawsuit from every single one of their unhappy customers. In some cases, those unhappy customers may even have the opportunity to file a class action lawsuit against the individual.

It is worth noting that mandatory "donations" in exchange for financial advice is no different than any other form of compensation. Changing the word assigned to the form of compensation does not change the illegality of the exchange.

At the end of the day, it is much safer to take the necessary tests and receive the required certifications to become a licensed financial adviser.

These scenarios are not to be taken lightly.

Source: https://www.givnerlawpc.com/fintwit-law/are-you-illegally-giving-financial-advice

 

[kmiklas]

View attachment 324547

“This is not financial advice” doesn't mean shit (emphasis mine) if someone is receiving compensation without being a licensed financial advisor.

Oftentimes the “this is not financial advice” disclaimer is attached to financial advice, advice both offered up for free and advice given after receiving compensation, in an effort to act as a shield against the Investment Advisers Act ("IAA" or “the Act”).

Unless an individual is receiving compensation for financial advice, the IAA should not be of worry. If, however, an individual is offering up financial advice in exchange for some form of compensation, these 5 magical words cannot shield them from the IAA. The IAA lists specific exceptions to the act and nowhere under those exceptions are the “this is not financial advice” disclaimer. Contrary to common belief, you cannot waive federal law.

Let’s say, for example, an individual has 30 people paying them $50 a month for “stock market education,” or stock market watchlists, or other stock market related advice. Before providing their services, the individual announces that any information discussed or communicated in exchange for the compensation is not financial advice and should not be treated as such. As nice as those words sound, the IAA includes no such waivers or exceptions for individuals in violation of the Act that tell their clients they are not receiving financial advice. In that scenario, the individual is providing financial advice for compensation to 30 clients. In theory, that person could be fined $5,000 per client and sentenced to 5 years in federal prison per client. This totals $150,000 in fines and a sentence of 150 years in prison. This is not including the other potential SEC civil liability, or other personal liability claims that could be brought against them.

As just mentioned, personal liability claims are something that an unregistered financial adviser is at risk of. Think, a group of clients receiving financial advice or "education" in exchange for compensation. If any one of those client loses half of their portfolio (or any sort of loss) during an unexpected market crash or other event, they, and any other client affected, has the right to sue the unlicensed individual. In fact, the unlicensed individual that accepted the compensation runs the risk of a potential lawsuit from every single one of their unhappy customers. In some cases, those unhappy customers may even have the opportunity to file a class action lawsuit against the individual.

It is worth noting that mandatory "donations" in exchange for financial advice is no different than any other form of compensation. Changing the word assigned to the form of compensation does not change the illegality of the exchange.

At the end of the day, it is much safer to take the necessary tests and receive the required certifications to become a licensed financial adviser.

These scenarios are not to be taken lightly.

Source: https://www.givnerlawpc.com/fintwit-law/are-you-illegally-giving-financial-advice

That… was a great answer. Thank you! I’m tempted to give you a hot tip in return…

 

[schizo]

I’m tempted to give you a hot tip in return…

Cool and I'll send you a $50 check... just to leave a paper trail.

Anyway, if she's old and "not good with technology," she can still go visit one of Charles Schwab offices. Ya can't get more old-fashioned than that.

 

[kmiklas]

Generally, only advisers who have at least $100 million of assets under management or advise a registered investment company are required to register with the SEC under the Investment Advisers Act of 1940.11

Are you sure this applies to me?

You wouldn’t happen to know what license I need to be able to legally advise someone like this? As a d/b/a

1. https://www.investopedia.com/terms/i/investadvact.asp

 

[cruisecontrol]

Just do it for free, then you'll have nothing to worry about.

 

[schizo]

Are you sure this applies to me?

You wouldn’t happen to know what license I need to be able to legally advise someone like this? As a d/b/a

1. https://www.investopedia.com/terms/i/investadvact.asp

Who Regulates Who

The SEC regulates investment advisers who manage $110 million or more in client assets, while state securities regulators have jurisdiction over advisers who manage up to $100 million. Advisers with less than $100 million in assets under management (AUM) must register with the state regulator for the state where the adviser has its principal place of business.

When a state-registered adviser’s AUM reach the $100 million threshold, the adviser might opt to register with the SEC—but when the adviser’s AUM exceed $110 million, they generally must register with the SEC. It’s important to find out exactly which services a professional who wears multiple hats will provide for you and what they’ll charge for their services.

https://www.finra.org/investors/investing/working-with-investment-professional/investment-advisers

 

[schizo]

You wouldn’t happen to know what license I need to be able to legally advise someone like this? As a d/b/a

I forgot to answer your second question. You first need to pass Series 65 (for financial planners or advisors) and then take the Certified Financial Planner (CFP) exam. Once you pass that, you become licensed as an official CFP.

But it's not worth going through all those hoops just to coach a neighborhood grandma what to do with her money. As mentioned above, sending her to the nearest Chuck Schwab would be the best advice.

 

[kmiklas]

I forgot to answer your second question. You first need to pass Series 65 (for financial planners or advisors) and then take the Certified Financial Planner (CFP) exam. Once you pass that, you become licensed as an official CFP.

But it's not worth going through all those hoops just to coach a neighborhood grandma what to do with her money. As mentioned above, sending her to the nearest Chuck Schwab would be the best advice.

I do have aspirations of becoming an advisor, and a number of others are asking me for help (one guy even said that he wants to work for me). So I feel like it’s time I took action on appropriate licensing. I’d like to make this a side gig.

I’d rather help her myself, and tbh, I’m not sure how much I trust Schwab.

 

[BMK]

Steps 1, 2 and 3 are not a problem.

It's only with step 4 that you get into licensing issues.

If you charge a fee to advise her to buy a particular investment product, whether it's US treasury bonds, index funds, or corn futures, then you are probably in violation if you are not licensed.

Suppose you are not charging a fee, and you just give her some friendly, generic advice, like, for example, "Well, if you want to invest in something where there is no risk to the principal, you can just buy US government bonds." That's probably okay, but then she says, "Okay, can you show me how to do that?"

So you help her open an online account at Schwab or eTrade. At this point I don't think there's a violation. But if you start to show her how to buy bonds, she's going to ask you which bonds she should buy. And even if you just help her choose the maturities, you are now giving financial advice. If you are not charging, it might be okay, but you're right on the edge.

Just because you are not charging a fee does not mean you are not in violation.

If you show her how to select bonds, and let her choose the maturities, based on when she thinks she will need the money, and you are not charging a fee, that might be okay.

But what if she says, "Well, what if something unexpected comes up, and I need the money before the maturity date?"

Now you find yourself explaining that she can sell the bonds, but may take a loss on principal, because bond prices la la la la la la la la la la...

and you have probably crossed into the realm of financial advice.

With all that being said, if you do not charge a fee, and you only do this for a couple people in your life, I think it is very unlikely that you would ever come up on the radar of a regulatory agency.

The only way you would become the subject of an investigation is if someone else finds out what you are doing for her, and they think you are exploiting her, or just giving her really bad advice, and they file a complaint...