Financial planning typically involves a variety of services, including preparing financial plans for clients based on their financial circumstances and objectives and making recommendations for specific actions clients may take. In many cases, financial planners also help implement these recommendations by, for example, providing insurance products, securities, or other investments. Individuals who provide financial planning services may call themselves a variety of different titles, such as financial planner, financial consultant, financial adviser, trust advisor, or wealth manager. In addition, many financial planners have privately conferred professional designations or certifications, such as Certified Financial Planner®, Chartered Financial Consultant®, or Personal Financial Specialist. The number of financial planners in the United States rose from approximately 94,000 in 2000 to 208,400 in 2008, according to the Bureau of Labor Statistics. The bureau projects the number will rise to 271,200 by 2018 because of the need for advisers to assist the millions of workers expected to retire in the next 10 years. According to the bureau, 29 percent of financial planners are self-employed and the remaining 71 percent are employees of firms, some of them large entities with offices nationwide that provide a variety of financial services. The median annual wage for financial planners was $68,200 in May 2009. According to an analysis of the 2007 Survey of Consumer Finances, the most recent year for which survey results are available, in 2007 about 22 percent of U.S. households used a financial planner for investment and saving decisions and about 12 percent of U.S. households used a financial planner for making credit and borrowing decisions. Those households most likely to use a financial planner were those with higher incomes. For example, 37 percent of households in the top income quartile used a financial planner to make investment and saving decisions compared to 10 percent of households in the bottom quartile. Financial planners are primarily regulated by federal and state investment adviser laws, because planners typically provide advice about securities as part of their business. In addition, financial planners that sell securities or insurance products are subject to applicable laws governing broker- dealers and insurance agents. Certain laws and regulations can also apply to the use of the titles, designations, and marketing materials that financial planners use. There is no specific, direct regulation of “financial planners” per se at the federal or state level. However, the activities of financial planners are primarily regulated under federal and state laws and regulations governing investment advisers—that is, individuals or firms that provide investment advice about securities for compensation. According to SEC staff, financial planning normally includes making general or specific recommendations about securities, insurance, savings, and anticipated retirement. SEC has issued guidance that broadly interprets the Investment Advisers Act of 1940 (Advisers Act) to apply to most financial planners, because the advisory services they offer clients typically include providing advice about securities for compensation. Similarly, NASAA representatives told us that states take a similar approach on the application of investment adviser laws to financial planners and, as a result, generally register and oversee financial planners as investment advisers. As investment advisers, financial planners are subject to a fiduciary standard of care when they provide advisory services, so that the planner “ held to the highest standards of conduct and must act in the best interest of clients.” SEC and state securities departments share responsibility for the oversight of investment advisers in accordance with the Advisers Act. Under that act, SEC generally oversees investment adviser firms that manage $25 million or more in client assets, and the states that require registration oversee those firms that manage less. However, as a result of section 410 of the Dodd-Frank Act, as of July 2011 the states generally will have registration and oversight responsibilities for investment adviser firms that manage less than $100 million in client assets, instead of firms that manage less than $25 million in assets as under current law. This will result in the states gaining responsibility for firms with assets under management between $25 million and $100 million. As shown in figure 1, as of October 2010, of the approximately 16,000 investment adviser firms providing financial planning services, the states were overseeing about 11,100 firms and SEC was overseeing about 4,900 such firms. However, in July 2011 about 2,400 of investment adviser firms that provided financial planning services (15 percent of the 16,000 firms) may shift from SEC to state oversight. SEC’s supervision of investment adviser firms includes evaluating their compliance with federal securities laws by conducting examinations of firms—including reviewing disclosures made to customers—and investigating and imposing sanctions for violations of securities laws. According to SEC staff, in its examinations, the agency takes specific steps to review the financial planning services of investment advisers. For example, SEC may review a sample of financial plans that the firm prepared for its customers to check whether the firm’s advice and investment recommendations are consistent with customers’ goals, the contract with the firm, and the firm’s disclosures. However, the frequency with which SEC conducts these examinations varies, largely because of resource constraints faced by the agency. SEC staff told us that the agency examined only about 10 percent of the investment advisers it supervises in 2009. In addition, they noted that generally an investment adviser is examined, on average, every 12 to 15 years, although firms considered to be of higher risk are examined more frequently. In 2007, we noted that harmful practices could go undetected because investment adviser firms rated lower-risk are unlikely to undergo routine examinations within a reasonable period of time, if at all. According to NASAA, state oversight of investment adviser firms generally includes activities similar to those undertaken by SEC, including taking specific steps to review a firm’s financial planning services. According to NASAA, states generally register not just investment adviser firms but also investment adviser representatives—that is, individuals who provide investment advice and work for a state- or federally registered investment adviser firm. In addition to providing advisory services, such as developing a financial plan, financial planners generally help clients implement the plan by making specific recommendations and by selling securities, insurance products, and other investments. SEC data show that, as of October 2010, 19 percent of investment adviser firms that provided financial planning services also provided brokerage services, and 27 percent provided insurance. Financial planners that provide brokerage services, such as buying or selling stocks, bonds, or mutual fund shares, are subject to broker-dealer regulation at the federal and state levels. At the federal level, SEC oversees U.S. broker-dealers, and SEC’s oversight is supplemented by self- regulatory organizations (SRO). The primary SRO for broker-dealers is FINRA. State securities offices work in conjunction with SEC and FINRA to regulate securities firms. Salespersons working for broker-dealers are subject to state registration requirements, including examinations. About half of broker-dealers were examined in 2009 by SEC and SROs. Under broker-dealer regulation, financial planners are held to a suitability standard of care when making a recommendation to a client to buy or sell a security, meaning that they must recommend those securities that they reasonably believe are suitable for the customer. Financial planners that sell insurance products, such as life insurance or annuities, must be licensed by the states to sell these products and are subject to state insurance regulation. In contrast to securities entities (other than national banks) that are subject to dual federal and state oversight, the states are generally responsible for regulating the business of insurance. When acting as insurance agents, financial planners are subject to state standard of care requirements, which can vary by product and by state. As of October 2010, 32 states had adopted a previous version of the NAIC Suitability in Annuities Transactions Model Regulation, according to NAIC. In general, this regulation requires insurance agents to appropriately address consumers’ insurance needs and financial objectives at the time of an annuity transaction. Thirty-four states had also adopted the Life Insurance Disclosure Model Regulation in a uniform and substantially similar manner as of July 2010, according to NAIC. This regulation does not include a suitability requirement, although it does require insurers to provide customers with information that will improve their ability to select the most appropriate life insurance plan for their needs and improve their understanding of the policy’s basic features. Financial planners that sell variable insurance products, such as variable life insurance or variable annuities, are subject to both state insurance regulation and broker-dealer regulation, because these products are regulated as both securities and insurance products. When selling variable insurance, financial planners are subject to FINRA sales practice standards requiring that such sales be subject to suitability standards. In addition, other FINRA rules and guidance, such as those governing standards for communication with the public, apply to the sale of variable insurance products. In addition, as previously discussed, 32 states also generally require insurance agents and companies to appropriately address a consumer’s insurance needs and financial objectives at the time of an annuity transaction. However, in the past, we have reported that the effectiveness of market conduct regulation—that is, examination of the sales practices and behavior of insurers—may be limited by a lack of reciprocity and uniformity, which may lead to uneven consumer protection across states. At the federal level, SEC and FINRA have regulations on advertising and standards of communication that apply to the strategies investment adviser firms and broker-dealers use to market their financial planning services. For example, SEC-registered investment advisers must follow SEC regulations on advertising and other communications, which prohibit false or misleading advertisements, and these regulations apply to investment advisers’ marketing of financial planning services. FINRA regulations on standards for communication with the public similarly prohibit false, exaggerated, unwarranted, or misleading statements or claims by broker-dealers, and broker-dealer advertisements are subject to additional approval, filing, and recordkeeping requirements and review procedures.