Reading 2022-02-20


Notes from reading

Does the not financial advice disclaimer really protect people from any liability for what they tell their viewers?

Applicable law

  • the investment advisors act of 1940
    • introduced to the u.s after the wall street crash of 1929 which kicked off the great depression as many people believed that the market collapse was partially the result of widespread speculation fueled by reckless advising from professionals
    • the act essentially made it so that only registered professionals could provide investment advice while at the same time outlining penalties for providing advice legally
    • under the act people who are not registered can be fined (not more than USD 10k), or may even face jail time of up to 5 years in federal prison if they provide illegal investment advice. It can also open you up to civil liability if you illegally recommend a stock to someone, and that position declines you could be sued for the damages
  • the 2013 memo by SEC outlined three criteria, that must be satisfied all three, for determining whether someone should be considered an investment advisor
    • provide advice to others or issue reports or analyses regarding securities
      • importantly this line focuses on advice about securities (such as stocks, bonds, mutual funds, ETF; not included real estate, coins, precious metals or commodities) and not financial advice as a whole
      • in fact, according to FINRA, you don't need to be registered to even be a financial planner and virtually anyone can offer financial planning services so long as they don't advise unregulated areas such as securities and insurance and other areas like that
    • provide advice for compensation
      • the SEC has historically interpreted the compensation requirement pretty broadly to refer to any economic benefit regardless of how it's received. It doesn't matter whether it's paid directly by the person receiving the advice or not. Or even if the advice isn't the sole reason for the fee, a benefit that's generated in relation to you providing advice is considered compensation
      • so there is a chance this criteria applies to youtuber's content, which is usually free but instead being paid at times through advertisements or sponsorships
    • you engage in the business of providing advice
      • Generally, a person providing advice about specific securities will be "engaged in the business", unless specific advice is rendered only on a rare or isolated occasion