Financial Planning: When Does Advice End and Brokerage Begin?
A federal court recently considered, albeit tangentially, the issue of when a financial planning advisory relationship ends and a brokerage relationship designed to implement the plan begins.
The issue came up in the context of an investor suit, Safer v. Nelson Financial Group. The plaintiffs had entered into multiple agreements with Nelson Financial, an independent RIA whose advisory affiliates were registered reps of a national broker-dealer firm. The plaintiffs argued that their dispute involved their advisory agreement, which, unlike the other agreements, did not contain a detailed pre-dispute arbitration clause. The RIA argued that the claims should be submitted to arbitration, as specified in plaintiffs’ brokerage agreement. The plaintiffs countered that they had no problem with the implementation of the financial plan. Rather, they said, it was the advice that was flawed.
The Fifth Circuit, overturning a lower court's decision, held that the matter should be submitted to arbitration. The court noted that the advisory agreement, on its face, terminated upon delivery of the financial plan.