Investors put more stock in investment professionals wearing 'adviser' label

New study shows 'adviser' is ranked closer to 'doctor' and 'lawyer,' while 'stockbroker' is grouped with 'car salesperson'

Sep 3, 2019 @ 2:11 pm

By Mark Schoeff Jr.

Consumers put more stock in investment professionals who use the title "adviser" than in those who are serving in a sales capacity, according to a new study.

A survey of 665 adults conducted last October and released Aug. 27 by the Mercatus Center at George Mason University shows respondents have a higher expectation about the level of service they'll receive for titles such as "financial planner," "financial advisor" and "investment adviser."

Those descriptions were clustered with "doctor" and "lawyer," while titles such as "stockbroker," "investment salesperson" and "life insurance agent" were clustered with "politician" and "car salesperson."

"[A]dvice-oriented titles (e.g., financial adviser, financial planner, investment adviser, investment consultant, and financial counselor) are perceived as different from sales-oriented titles (e.g., stockbroker, life insurance agent, investment salesperson) when evaluated across perceptual dimensions of competence and loyalty," the study states.

The survey participants indicated that a "stockbroker," "investment salesperson" and "investment adviser" would have similar skills. But they saw an "adviser" as looking out for them in a way similar to a doctor or lawyer.

"On competency, there's not a big difference," said the author of the study, Derek Tharp, an assistant professor of finance at the University of Southern Maine. "It's the loyalty component" that creates the separation between advice and sales.

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The use of the term "financial adviser" by brokers or other investment professionals who are not investment advisers has stirred controversy for years. Investment advisers must act as fiduciaries for their clients while brokers are held to a suitability standard when selling investment products.

In June, the Securities and Exchange Commission approved a regulatory package to raise investment advice standards, but it did not include a formal title reform proposal. Titles are touched upon in the so-called Form CRS, a disclosure document designed to outline the differences between advisers and brokers.

Mr. Tharp said it's still investor beware when it comes to titles.

"You want to make sure you investigate the person you're working with to understand how they operate, how they're paid, and ensure their job function aligns with your understanding of their job title," he said.

The CFA Institute, which has been advocating for title reform for years, said the recent SEC reforms have not cleared things up for investors.

"Unfortunately, the SEC is done with fiduciary duty and broker reforms for now," Kurt Schacht, managing director for policy and regulatory relations at CFA Institute, wrote in an email. "Not only is there continued title confusion, the simple task of explaining which financial adviser you are, a salesperson or a fiduciary, is nearly incomprehensible in the Form CRS."

In his paper, Mr. Tharp recommends that financial regulators create a "safe harbor" for certain titles rather trying to ban those that can be misleading.

"It gets away from the constant chasing after the new term," he said.


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