SENATE BILL REPORT

SB 5085

BYSenators von Reichbauer, Moore, Smitherman, Rasmussen and Johnson

Regulating financial planners.

Senate Committee on Financial Institutions & Insurance

Senate Hearing Date(s):January 12, 1989; January 27, 1989

Majority Report:  That Substitute Senate Bill No. 5085 be substituted therefor, and the substitute bill do pass.

      Signed by Senators von Reichbauer, Chairman; Johnson, Vice Chairman; Fleming, McCaslin, Matson, Rasmussen, Sellar, Smitherman, West.

Senate Staff:Walt Corneille (786-7416)

                  February 2, 1989

AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE, JANUARY 27, 1989

BACKGROUND:

Few states have laws regulating financial planners or financial planning.  Many financial planners function as investment advisers and are regulated under state securities laws since most financial planners give advice relating to securities.

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 may earn both a fee for planning and commissions from the sale of securities or insurance products to the client.

Washington State's securities laws define an investment adviser as any person who advises, for compensation, on the value of securities or the advisability of investing in, purchasing or selling securities.  Financial planning or financial planners are not specifically referred to in the state securities laws and are not explicitly made subject to those laws.  The business of financial planning often involves activity very similar, if not identical, to that engaged in by investment advisers.

SUMMARY:

The Securities Act of Washington is amended to include financial planners under the definition of investment adviser.  The definition is changed to include financial planners or any person who, as an integral component of providing financial related services, provides investment advice to others for compensation.  It also applies to those who hold themselves out as providing investment advisory services for compensation or hold themselves out as financial planners.

It is a violation of the law to hold oneself out as a financial planner, investment counselor or other similar term unless registered as an investment adviser.  Other similar terms may be specified in rules adopted by the director of the Securities Division.

EFFECT OF PROPOSED SUBSTITUTE:

The exemption from the definition of investment adviser pertaining to accountants whose performance of investment adviser services is solely incidental to their practice is expanded.  Certified public accountants are also exempt if the performance of investment adviser services is solely incidental to their practice.

Radio or television stations are made totally exempt from the definition of investment adviser.

Appropriation:    none

Revenue:    none

Fiscal Note:      available

Senate Committee - Testified: Carl Warren, Washington Association of Accountants (pro); Bruce Ellis, Washington Association for Financial Planning; Joan Gaumer, CPA's; Matt Ryan, self; Frank Keller, Agents and Brokers Legislative Council (pro); Mark Allen, IAFP; Mark Kantor, IDS