When speaking with a group of financial planners recently, I was somewhat surprised to hear that some believe their industry is under regulated—or not regulated at all. The reason for my surprise? As a former securities regulator, I think of financial planners as working within (or, certainly on the very edges of) a highly regulated financial services industry.
While it’s true that financial planners are not required by law to obtain a “financial planner license,” a person who hangs a shingle and calls themselves a financial planner exposes him/herself to significant liabilities. This is particularly true if the planner is unknowingly engaged in activities or services that would require registration as an investment adviser, investment adviser representative, broker-dealer, agent and/or insurance producer. That said, Minnesota law also includes provisions pertaining specifically to financial planners.
Most notably, Minnesota Statute § 45.026, explicitly states that “persons who represent that they are financial planners have a fiduciary duty to persons for whom services are performed for compensation.” This statute clarifies that clients of financial planners may, in a civil lawsuit, recover actual damages resulting from the breach of a planner’s fiduciary duty. The statute also authorizes the Commissioner of Commerce (“Commerce”) to: (1) bring an action against the planner in district court or (2) refer an investigation of the planner to the Minnesota Attorney General’s office or the office of the applicable county attorney for further investigation.
Minnesota Rule 2876.5024 provides that it is unlawful for any person “registered or required to be registered” as an investment adviser, investment adviser representative, broker-dealer, or broker-dealer agent to:
represent on advertisements, cards, signs, circulars, letterheads, or in any other manner, that the person is engaged in the business of financial planning unless the person provides a disclosure document to the client.
The rule goes on to clarify, in very specific terms, what must go into such a disclosure document. Commerce again has authority to take civil or administrative action against a planner who fails to meet these requirements.
Finally, Minnesota Rule 2876.5025 prohibits any person advising clients on securities-related matters from using certain senior-specific certifications or professional designations that imply the person has special training in advising or servicing senior citizens or retirees. Though this rule is designed to prevent more extreme instances of fraud, planners implying in any way that they are “experts” in helping seniors or retirees would be wise to take a look at the rule to be sure they are compliant. Failure to meet the requirements of this rule, yet again, exposes planners to civil or administrative liability under the Minnesota Securities Act.
Brian Edstrom is a Shareholder and Attorney at Avisen
Legal, P.A. He brings to Avisen clients the ability to “speak regulator,” having
spent several years working for federal and state regulators in Washington D.C.
and Saint Paul, MN before entering private practice. Brian assists
clients in all aspects of working with securities regulators, whether it be to
obtain a license or registration, prepare for an audit, or respond to an
enforcement investigation. Brian also regularly advises clients on their
general business needs, particularly surrounding raising money through