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Commission’s recently completed financial literacy study documents the extreme limitations ofdisclosure as an effective investor protection tool. 7 In a market in which brokers and advisersuse comparable titles and offer similar services and when brokerage firms spends millions ofdollars on marketing campaigns designed to blur those distinctions, there is simply no basis forbelieving that disclosure alone would resolve that confusion. Indeed, the Commission hasalready been down that road (as we will discuss further below) and realized the impossibility ofdesigning a disclosure to effectively convey such a complex set of issues in a way that typicalinvestors are likely to comprehend. 8The key point is this: the relevance of investor confusion is not that it is the problemCommission rulemaking is intended to solve, but rather that it eliminates as viable optionscertain disclosure-based regulatory approaches that the Commission might otherwise consider.The existence of widespread investor confusion also exposes the absurdity of suggesting thatinaction is acceptable since investors can simply choose whether they prefer to deal with aninvestment adviser, who is subject to a fiduciary duty, or a broker-dealer, who is not. Investorswho cannot distinguish between brokers and advisers and who do not understand that these twotypes of investment professionals are subject to different legal standards when they offer advicesimply cannot make an informed choice. Thus, widespread investor confusion not only limitsthe regulatory alternatives available to the Commission, but it also highlights the need forCommission action to address this market failure. Past Commission actions, not statutory differences, created the problem the Commissionnow seeks to solve.Over the years, the Commission has repeatedly suggested that the difference in standardsof conduct that apply to investment advice offered by broker-dealers and investment advisersresults from the fact that broker-dealers are subject to a statutory exclusion from the definition ofinvestment adviser under the Investment Advisers Act. An unbiased reading of the statute, thelegislative history, and the record of past Commission action (and inaction) demonstratesconclusively, however, that it is not the statutory exclusion itself, but rather the Commission’soverly broad interpretation of that exclusion, that has allowed brokers to rebrand themselves asadvisers and offer extensive investment advice without being regulated under the Advisers Act.CFA has previously detailed this argument in a comment letter on the legislative history behindthe broker-dealer exclusion, which we incorporate by reference. 9 While we will not reargue theissue in detail, a few of the key points bear repeating.When Congress adopted the Investment Advisers Act of 1940, it adopted a very broaddefinition of investment advice, essentially covering anyone in the business of giving adviceabout securities for compensation. That definition clearly would have swept in brokers under theauspices of the Advisers Act absent an exclusion. In crafting that exclusion, Congress rejected7 Staff of the Securities and Exchange Commission, Study Regarding Financial Literacy Among Investors (AsRequired by Section 917 of the Dodd-Frank Wall Street Reform and Consumer Protection Act), August 2012.8 See Siegel & Gale, LLC and Gelb Consulting Group, Inc., Results of Investor Focus Group Interviews AboutProposed Brokerage Account Disclosures, Report to the Securities and Exchange Commission, March 10, 2005.9 Letter from CFA Director of Investor Protection Barbara Roper to SEC Secretary Jonathan Katz regarding“Certain Broker-Dealers Deemed Not to be Investment Advisers,” File No. S7-25-99, (February 7, 2005). A copyof that letter is available here.4