Lack of facts could hurt fight for fiduciary standard

The lack of empirical evidence showing that brokers lead investors into bad investments because they want the commissions from those products is making it a challenge for supporters of a uniform fiduciary duty to convince lawmakers that there is a problem

The lack of empirical evidence showing that brokers lead investors into bad investments because they want the commissions from those products is making it a challenge for supporters of a uniform fiduciary duty to convince lawmakers that there is a problem.

“Do you have anything other than anecdotal examples — hard factual data — to show that the suitability standards have been dis-serving to those served by broker-dealers?” asked Rep. Scott Garrett, R-N.J., chairman of the House Financial Services subcommittee that held a hearing last week on financial adviser regulation.

Witnesses who support requiring brokers to meet a tougher fiduciary standard, one that requires they act in the best interests of their client, had little to offer.

Brokers follow a less stringent suitability standard that requires them to recommend only those financial products that satisfy a client’s investment needs.

“There [are] survey data that clearly show investors are satisfied,” but consumers don’t know what they need to know, said Barbara Roper, investor protection director for the CFA. “If they don’t know that another product offers much better benefits than the one they were sold, why should they be dissatisfied?”

Ms. Roper said she encouraged the Securities and Exchange Commission to pursue such data in the report it issued in January that recommended a regulation to improve protection of investors confused by differing standards of care between advisers and brokers.

“It’s not that you can’t get it, but it’s not there,” Ms. Roper said. “There is evidence that could be collected and should be collected.”

Studies show that the single factor that most determines an investor’s long-term performance is cost, which is considered under a fiduciary standard and is not under a suitability standard, she told the panel.

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