Most investors think brokers are fiduciaries, survey says

Sep 15, 2010 @ 1:50 pm

By Mark Schoeff Jr.

While it's still unclear whether the SEC will back a universal standard of care for brokers and investment advisers, one thing seems certain: investors want a single standard.

More than 90% of investors say they want fiduciary rules to apply to brokers and insurance agents, according to a survey released Wednesday.

Opinion Research Corp./Infogroup found that among 1,319 investors it surveyed, 91% believe that a broker and investment adviser should follow the same investor protection rules, and 96% favor applying those uniform rules to insurance agents as well.

In addition, 97% said that financial professionals should put investor interests ahead of their own and disclose fees and conflicts of interest, the standard to which investment advisers adhere.

More fodder for the SEC to consider: More than half of investors are confused about the standards of care that different advisers must meet. And at least 60% of the respondents said they assume that insurance agents and stockbrokers are already held to a fiduciary duty – which is not true. Currently, brokers only have to meet a suitability standard ensuring that investments meet a client's needs, risk appetite and timeline.

“This lack of understanding is not because investors are stupid,” said Barbara Roper, the CFA's director of investor protection. “It's because the policy itself is stupid.”

Fiduciary advocates hope that the survey results will encourage the SEC to clear up the confusion and establish a universal fiduciary standard of care for retail investors.

Under the Dodd-Frank financial-reform law, the SEC must submit to Congress by January a study about the differences between investment adviser and broker-dealer oversight, and any existing regulatory gaps. The agency is then authorized to promulgate a standard-of-care rule that covers anyone providing personalized retail investment advice.

Fiduciary advocates said that the investor survey directly answers two questions the SEC study covers: Do investors know that different standards of care exist, and does this difference lead to confusion about the advice they receive?

“This study is probably going to be the seminal study to address those issues,” said Denise Voigt Crawford, Texas' securities commissioner and president of the North American Securities Administration Association Inc., which was one of the sponsors of the poll.

Ms. Crawford also said that the poll provides a chance for the SEC to hear from investors, who she said were overshadowed during the comment period in August when the agency received more than 2,500 responses.

“Many of these comments were the result of industry-funded campaigns designed to jam the SEC's inboxes and drown out the voices of investors with the same tired rhetoric that was used to influence Congress” during the financial-reform debate, she said.

In addition to Ms. Crawford's organization, others that sponsored the poll include the Consumer Federation of America, AARP, the Certified Financial Planner Board of Standards Inc., the Investment Adviser Association, the Financial Planning Association and the National Association of Personal Financial Advisors.

The groups contend that investors assume that everyone in the advice business is looking out for their best interests rather than trying to sell investment products. That's partly because broker-dealers have become more advisory in their practices.

Some groups support a uniform standard, but one that doesn't impinge on the range of investment products that can be offered to investors

"SIFMA supports and investors deserve a clear, uniform standard of care when receiving personalized investment advice about securities," SIFMA spokesman Andrew DeSouza said in an e-mail statement. "Following the SEC study of this issue, we hope they exercise their rulemaking authority to develop a new uniform standard that protects investors while preserving investor choice and access to the products and services that best fits their financial needs."

Some broker-dealer groups argue that the different standards are necessary to preserve their business model, which revolves around charging commissions for financial transactions. Investment adviser fees are based on a client's asset level.

Two groups skeptical of imposing a fiduciary duty on broker dealers and insurance agents -- the Financial Services Institute and the National Association of Insurance and Financial Advisors -- declined to comment on the poll.

But Robert Glovsky, chairman of the CFP Board, noted that CFP designates must meet a fiduciary standard in running commission businesses.

“It does not require abandoning their brokerage or insurance business models,” Mr. Glovsky said.

Another argument that brokers-dealer and insurance groups made to the SEC is that their constituents are already heavily regulated by the Financial Industry Regulatory Authority Inc. and state commissioners. Adding a fiduciary duty to the mix would cause regulatory overload and increase costs and litigation.

In addition, the National Association of Insurance and Financial Advisors asserted that its 200,000 members follow ethical practices because their businesses are integrated into their communities, where they see clients “at places of worship, the school, the grocery store and as neighbors.”

Fiduciary advocates said that this kind of self-policing doesn't substitute for codifying a fiduciary standard to protect investors. Mary Wallace, senior legislative representative at AARP, said the elderly are especially vulnerable.

“Older people feel the impact [of varying advice standards] more acutely because they have fewer opportunities and less time to recoup losses,” she said.

Fiduciary advocates hope that they can bring the SEC around to their point of view.

“We encourage the SEC to listen to the voice of investors as expressed in this survey and do the right thing,” Ms. Crawford said.

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