Can financial advisors day trade or is that against sec regulations?

The financial advisory community is preparing to undergo the greatest regulatory change in almost nine decades. This change (which will become effective January 1, 2017) will require that only Certified Financial Planner® professionals be allowed to provide advice on investment. But what does this mean for current advisors? Are financial advisors allowed to day trade or is that against SEC regulations?

Are financial advisors allowed to trade with their own cash? We have the answers.

The rules are different for financial advisors depending on the kind of license they have.

Financial advisors are allowed to day trade with their own money as long as they have a Series 7 license. The rules are different for financial advisors depending on the kind of license they have. If you’re a registered representative, you can only day trade with your own funds and those of your clients.

If you’re an investment advisor, however, you can day trade with client funds and your own. This means that if you work at a brokerage firm (like Fidelity) or sell mutual funds, you could technically day trade with your clients’ money even though it isn’t allowed for registered reps. But there are some caveats: They include having no more than 5% of their assets in securities that aren’t approved by their compliance department, not having more than 25% of their assets in margin accounts and not having more than 25% of their assets in any one security or asset class at any one time.

Financial advisors who work for broker-dealers can't day trade their own accounts but may choose to invest their own money in long term investments.

A financial advisor who works for a broker-dealer can't day trade his or her own accounts. But the SEC does allow them to invest their own money in long-term investments, and some do so with very good results. Consultant Bob Powell says he has many clients who want him to manage their money and also want him to make short-term trades on their behalf.

He's happy to do so as long as they're willing to accept lower returns than they would get from most other investments. Some financial advisors are allowed to day trade, but only with other people's money — not their own — says consultant Mike Durbin, who runs a website called "The Advisor's Edge." "The SEC doesn't allow you to use your own money in day trading," he says.

"That's considered proprietary trading.

Registered investment advisors (rias) are allowed to day trade their own accounts.

Registered investment advisors (RIAs) are allowed to day trade their own accounts. They are not allowed to day trade for clients, although RIA firms that manage money for clients sometimes do so anyway. However, many RIAs have found ways around this restriction by setting up separate funds or other structures that allow them to invest client money in the market.

Some RIA firms are even set up as hedge funds and are able to invest client money in stocks and options through those structures. In addition, there is a growing trend toward what I call "hybrid" advisors who combine traditional investment management with strategies like options trading and futures trading.

These hybrid advisors often operate as partnerships or LLCs rather than as RIAs because they don't want the additional regulatory burden of being an RIA firm. Finally, there are some new entrants into the financial advisory business who aren't registered with any regulatory agency at all because they're so small that they don't need to be registered!

Rias must disclose that they're day trading to their clients.

The short answer is yes, but there are some caveats. Financial advisors are allowed to day trade, but the SEC has strict rules about when they can do it and how they must disclose it to clients. In particular, they must disclose that they're day trading to their clients and give them a chance to opt out of that strategy before going forward with it.

The reason for this rule is simple: If an advisor is allowed to make trades on his own behalf without disclosing it, then investors have no way of knowing whether their advisor is acting in their best interest or his own best interest. But even if you're following all of the rules and regulations set forth by the SEC and FINRA (the Financial Industry Regulatory Authority), you still need to understand the risks involved with day trading if you want to be successful at it.

In a nutshell

In a nutshell, yes, financial advisors are allowed to day trade. However, it might not be in their best interest to do so. There are a variety of factors that come into play here, but primarily why financial advisors are allowed to day trade is because they aren't considered registered brokers.

If they were, then the answer would clearly be no.