Advisers are gaining client confidence even as financial firms continue to score low in the trust department following years of reports about Wall Street abuses.
In fact, about 66% of investors said they think their financial adviser is obligated always to act in their best interests, compared with just 28% who said they think financial firms put clients' interests first on the whole, according to a survey by Cerulli Associates Inc. released last week.
“Investors perceive that, "My adviser, Joe, would never steer me wrong,'” said Scott Smith, a director at Cerulli.
Certain advisers — those working for insurance companies, midsize brokerages and wirehouses — appear to be especially successful at forging strong personal relationships and inspiring client trust, he said.
But clients' understanding that different standards of care exist for financial professionals appears to be at best weak, at worst backward.
In the survey, 81% of clients of insurance companies and 81% of those from full-service brokerages such as Ameriprise Financial Inc. or Edward Jones said they think their adviser must follow a fiduciary standard, acting in the best interests of the client at all times. About 75% of those working with a wirehouse said they think their adviser must abide by a fiduciary duty.
In reality, most of these clients likely are owed a suitability standard of care, meaning that the adviser must ensure that an investment is consistent with their best interests but not necessarily “the best” option available, Mr. Smith said.
About 65% of clients of independent advisers said they think their adviser must always act in their best interests, according to the survey of 6,000 U.S. investors.
Independent advisers, of course, are most likely to be operating under the 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.”
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