SENATE BILL REPORT
SHB 1440
BYHouse Committee on Financial Institutions & Insurance (originally sponsored by Representatives Lux, Winsley, Zellinsky, Silver, Nutley, Dorn, Anderson, Crane, Taylor, Chandler, Baugher, Betrozoff, Prince, Smith, Meyers, Cooper, Locke, H. Sommers, Braddock, Heavey, Rust, Jacobsen, Cantwell, Bristow, Wineberry, Wang, Sayan, Leonard, Rayburn, K. Wilson, Basich, Unsoeld, Spanel and Brekke)
Regulating financial planning.
House Committe on Financial Institutions & Insurance
Senate Committee on Financial Institutions & Insurance
Senate Hearing Date(s):February 25, 1988
Senate Staff:Walt Corneille (786-7416)
AS OF FEBRUARY 24, 1988
BACKGROUND:
No federal or state law explicitly governs financial planners or financial planning. Many financial planners are regulated as investment advisers under state securities law since most financial planners give advice relating to securities.
Some states and numerous public and private organizations have developed proposals for regulating or controlling the financial planning business. These proposals have not been adopted by any state Legislature to date.
In essence, financial planning is a process whereby the planner examines a client's finances and investments and then recommends a plan for achieving financial and investment goals. Trade associations require planners to possess a broad knowledge of insurance, finance, securities, and taxes so that planners may properly provide service. Most planners come from the insurance and securities business and earn both a fee for planning and commissions from the sale of securities or insurance products to the client.
SUMMARY:
The Legislature finds that the lack of regulation of persons holding themselves out to the public as financial planners creates an opportunity for the unskilled or dishonest to harm the public through incompetence or fraud.
Various words and phrases are defined. Financial planning means furnishing recommendation or advice regarding a person's finances or investments. Those engaged in business as lenders, insurance agents or brokers, debt adjusters or counselors, attorneys, accountants, financial institutions, broker-dealers and their representatives, investment advisers and their representatives, teachers, or engineers are deemed not to be engaged in business as financial planners unless these persons use, advertise, or employ the term financial plan, financial planner, or financial planning services.
No person may engage in business as a financial planner unless the person registers as an investment adviser under state and federal investment adviser laws.
Financial planners must disclose the following information to potential clients before entering into a contract to provide services: any fee that will be charged by the planner, any commissions that may be earned by the planner, the percentage of past clients who purchased products from the planner resulting in additional compensation to the planner, the education and experience of the planner, the length of time the planner has been in business, the criminal record of the planner related to the business, that the client is under no obligation to purchase products or services from the planner in order to fulfill a plan devised by the planner, and any other relevant information required by the Director of the Department of Licensing.
It is unlawful for planners to engage in unfair, deceptive, or fraudulent activities. Such illegal activities or failure to make required disclosures is a violation of the consumer protection act.
No certified public accountant who holds himself or herself out to the public as a financial planner may pay compensation to obtain a client, nor may an accountant earn compensation for the recommendation of products or services.
Any person who wilfully violates provisions of the act may be convicted of a gross misdemeanor. A person who willfully violates the disclosure provisions of the act must know that the information is false or misleading to be convicted of a gross misdemeanor.
The director may turn over evidence of a violation to the appropriate prosecuting attorney for criminal proceedings or the appropriate prosecuting attorney may institute criminal proceedings without referral from the director.
The director may adopt any rules necessary to implement the act and must coordinate the disclosure requirements of the act with the disclosure required under the state investment adviser law to avoid duplication of disclosure.
Appropriation: none
Revenue: none
Fiscal Note: requested January 11, 1988
Effective Date:The bill takes effect January 1, 1989.