Clients trust advisers; advisory firms, not so much

Study finds some confusion over fiduciary duty vs. suitability

Feb 5, 2013 @ 1:05 pm

By Liz Skinner

Advisers are largely gaining client confidence even as financial firms continue to score low in the trust department following years of reports about Wall Street abuse.

In fact, about 66% of investors believe that their adviser must always act in their best interests, compared with just 28% who think financial firms as a whole put clients' interests first, according to a survey by Cerulli Associates Inc. released late last week.

“Investors perceive that, 'My adviser Joe would never steer me wrong,'” said Scott Smith, director at Cerulli.

Certain advisers — those working for insurance companies, midsize brokerages and wirehouses — appear to have been especially successful at forging strong personal relationships and inspiring client trust, Mr. Smith said.

But client understanding that different standards of care exist for financial professionals appears to be at best weak, at worst backwards.

In the survey, 81% of clients of insurance companies and 81% of those from full service brokerages such as Edward Jones or Ameriprise Financial Inc. believe that their adviser must act in the best interests of the client. About 75% of those working with a wirehouse believe that their adviser must follow what the industry knows as fiduciary duty.

In reality, most of these clients likely are owed a suitability standard of care, meaning the investments must be consistent with their best interests but not necessarily “the best” option available, Mr. Smith said.

At the same time, about 65% of clients of independent advisers believe that their adviser must always act in their best interests, according to the survey of U.S. households.

Independent advisers, of course, are most likely to be operating under the higher fiduciary standard of care.

“The personal relationships are more important to investors at this point than the actual government standard,” Mr. Smith said. “We need to get to a place where investors are getting what they already think they are getting.”

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video

INTV

Advisers beware: tax law has unintended consequences

Commission accounts could be preferable for some clients, and advisers could be incentivized to move from employee broker-dealers to independent channels.

Recommended Video

Path to growth

Latest news & opinion

Bond investors have more to worry about than a government shutdown

Inflation worries, international rates pushing Treasuries yields higher.

State measures to prevent elder financial abuse gaining steam

A growing number of states are looking to pass rules preventing exploitation of seniors.

Morgan Stanley reports a loss of advisers after exiting the protocol for broker recruiting

The firm said it lost 47 brokers in the fourth quarter, the most in any quarter of 2017.

Morgan Stanley's wealth management fees climb to all-time high

Improvement reflect firm's shift of more clients into fee-based accounts priced on asset levels, which boosts results as markets rise.

Legislation would make it harder for investors to sue mutual funds over high fees

A plaintiff would have to state in their initial complaint why fiduciary duty was breached, and then prove the violation with 'clear and convincing evidence.'

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print