Financial advisers are overwhelmingly in favor of adopting a uniform fiduciary standard for investment advisers and broker-dealers alike, and they also think that the industry should be governed by a single regulatory body.
Nearly 90% of advisers polled by Chicago-based Incapital LLC would like to see a fiduciary standard established and applied to anyone providing any form of investment advice to individual investors.
The e-mail survey, conducted with
InvestmentNews, also found that more than two-thirds of the advisers canvassed want the entire financial advisory community to be overseen by just one governing body — such as the New York- and Washington-based Financial Industry Regulatory Authority Inc. — rather than having multiple regulators for different parts of the industry.
The survey gathered the re-sponses of about 700 advisers this month — shortly after the Obama administration proposed that any broker who offers investment advice should have to adhere to a fiduciary code of conduct that would require them to put their clients' interests first.
Most brokers, even those at firms that offer investment or insurance products, “already think like a fiduciary and act like a fiduciary,” said Tom Ricketts, chief executive of Incapital. “But if they're not formally recognized as a fiduciary, it could put them at a disadvantage when trying to attract new clients.”
Establishing a fiduciary standard, observers said, would make it easier for consumers to understand exactly what role their adviser or broker were acting in and if there were potential conflicts that could cloud the advice that they provided.
“Most people expect that their adviser is always acting in their best interest,” said Richard Salmen, president of the Denver-based Financial Planning Association. “But if there's anything that could alter their motivation, it needs to be made apparent to the consumer before an adviser-client relationship is even formed.”
In addition to the fiduciary issue, the Obama administration has focused on the way brokers are paid and whether their firms' compensation practices have the potential to compromise the integrity of the investment advice they provide.
So the administration has also proposed legislation that would allow the Securities and Exchange Commission to weigh in on broker compensation when necessary. The SEC, under the proposal, “would be empowered to examine and ban forms of compensation that encourage financial intermediaries to steer investors into products that are profitable to the intermediary but are not in the investors' best interest,” according to a July 10 statement from the Department of the Treasury.
“It's all about managing and improving the consumers' expectations,” Mr. Salmen said.
The administration has also been exploring the possibility of putting all advisers and brokers under a single regulator — a move that White House officials have said would “harmonize” regulations across the industry.
Sixty-nine percent of advisers Incapital surveyed said they strongly favored this concept.
“For a lot of advisers, it would definitely simplify many of their compliance issues, for one,” Mr. Ricketts said.
But it would also provide a “new level of clarity” for many advisers that doesn't exist at the moment, Mr. Salmen said.
“Whenever you serve multiple masters, it's always going to create multiple problems and headaches,” he said.
It is unclear which entity might serve as this unifying regulatory body, but Finra officials have been angling to put advisers under their organization's oversight.
In a public statement last month, Richard Ketchum, Finra's chairman and chief executive, labeled the separate “oversight regimes” for brokers and investment advisers as “the most glaring example of a regulatory gap that needs fixing.”
He then outlined the resources and the experience that Finra possesses that make it “uniquely positioned” to regulate the advisory industry, but added: “Whether Finra should be vested with the authority to regulate investment advisers is ultimately for Congress and the SEC to answer.”
E-mail Mark Bruno at [email protected].
