Illinois Financial Planning Newsroom

NAPFA Criticized Investment Giant Of Illinois Financial Planner Smith Barney

Watch Out for Smith Barney’s "Financial Advisors," NAPFA Declares Arlington Heights, IL (December 21, 2005) – NAPFA, the National Association of Personal Financial Advisors, criticized investment giant Smith Barney for a new marketing strategy that has the potential to mislead consumers. Under the announced plan, Smith Barney will in 2006
change the title of its brokers to “financial advisors,” thus seeking to co-opt a term that is usually associated with independent financial professionals who meet higher regulatory and professional standards.

“The term ‘financial advisor’ should be reserved for professionals who give objective financial advice and who ALWAYS put the interests of their clients first,” said Peggy Cabaniss, NAPFA chair. “It should not be co-opted by salespeople whose only loyalty, both financially and legally, is to their employer.” NAPFA is the professional association for Fee-Only, comprehensive financial advisors. NAPFA members are distinguished from Smith Barney-type brokers in many ways. One key fundamental difference is that NAPFA members act as fiduciaries. Financial advisors who are
regulated under the 1940 Investment Advisors Act are required to be fiduciaries with their clients. Fiduciaries are required, by law, to put their clients’ interest first.

Stock brokers, including those of Smith Barney, are exempt from the Act and are not required to be fiduciaries. A second key difference is that NAPFA members do not earn commissions or other forms of payment based on the investment decision made by their clients. “The problem with Smith Barney’s model is that the firm’s so-called ‘advisors’ have built-in bias to sell products. They don’t get paid unless they convince their clients to buy something, and it may often be a Smith Barney product,” said Cabaniss. “NAPFA believes that the Smith Barney model is not in the best interests of the consumer.” NAPFA has been fighting against the blurring of the line between brokers and financial advisors for years. But it’s an uphill battle. And unfortunately, federal government regulators appear to be siding with the wealthier, more influential broker-dealer firms instead of taking the side of consumers who need protection.

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