For the last few weeks we have been receiving daily requests for more info on Wealth Generators, and for us to provide some guidance to those who are looking to join the company. Below is the advice we have about Wealth Generators.
In 1940 the The Investment Advisors Act went into effect and became law. In this law the definition of Investment Advisor is as follows:
‘‘Investment adviser’’ means any person who, for com pensation, engages in the business of advising others, either di rectly or through publications or writings, as to the value of se curities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities.”
Now there is an additional section of the definition which reads as follows”
(D) the publisher of any bona fide news paper, news magazine or business or financial publication of general and regular circulation;
Since Wealth Generators really offers their investment advice through their email newsletter, they may honestly beleive they are exempt from needing to be licensed or have their sales force licensed.
However, in 1940 email was not in existence, and in reading the above, I am pretty sure we are talking about print info, not digital.
And having been personally sanctioned by the SEC for violating the Securities Act of 1934 (long before the internet was around), I have learned first hand that the interpretation of the laws can be somewhat complicated.
So at best the company, might be able to wiggle out of having an investment advisor license, but since they are using a sales force to sell the investment advice to other people, I think at best they are oppressing in a gray area, and leaving all their reps open for regulatory as well as consumer issues.
Forbes Magazine has also written a great article on this subject. (Read Here)
Now what caught my eye in the article is the following…
To give investment advice, one needs to be licensed as a Registered Investment Advisors. RIA’s have a legal obligation to always recommend what is in the best interest of the client, disclose all relevant details, and avoid conflict of interest. This is the fiduciary standard.
Investment advice can be provided by a non-RIA’s under two exemptions:
1- Advice associated with offering investments for sale can be given via a Broker Dealer representative. However, these sales folks currently operate under the “suitability standard” which does not have the same legal safeguards that you have when using a RIA.
2- CPAs and attorneys are exempt when providing advice in the normal course of their work and do not hold themselves out as an Investment Advisor.
What caught my eye in the above piece of the Forbes article is the phrase “fiduciary standard.”
Although you can pull it up in the 1940 Investment Advisers Act, I went to Wikipedia for a quick review and found the following:
An IA must adhere to a fiduciary standard of care laid out in the US Investment Advisers Act of 1940. This standard requires IAs to act and serve a client’s best interests with the intent to eliminate, or at least to expose, all potential conflicts of interest which might incline an investment adviser—consciously or unconsciously—to render advice which was not in the best interest of the IA’s clients.
So even though Wealth Generators doesn’t call itself an Investment Advisor, I’m concerned the SEC and other regulatory bodies may see the independent professionals they have hired as independent contractors though their network marketing channel could be seen as providing or maybe inciting clients to invest by promoting the ROI of the Wealth Generators email newsletter and investment advice videos.
To the reps who are currently promoting Wealth Generators, I would strongly suggest you purchase E&O Insurance Coverage.