US Investors Misunderstand Role Of Stockbroker, Survey Reveals

by Philip Morton, Investors Offshore

30 April 2007

According to a survey published last week, more than nine out of 10 US investors (91%) think that stockbrokers and financial planners who provide investment advice services should be subject to the same investor protection rules.

The survey, released on Thursday by the Zero Alpha Group (ZAG) and the Consumer Federation of America (CFA), additionally revealed that fewer than one out of three US investors (30% in 2007) correctly understand that the "primary service" provided by stockbrokers is the buying and selling of stocks, mutual funds, bonds, etc., not the provision of investment advice.

This is virtually unchanged from the 26% of US investors who responded in the same manner when this same question was posed in a 2004 ZAG/CFA survey.

Although stockbrokers are salespeople, a majority of investors (a virtually unchanged 54% in 2007, from 53% in 2004) look to stockbrokers for more than transactional assistance, with 29% (almost identical to 28% in 2004) believing that financial advice is the "primary" service offered by stockbrokers and 25% (unchanged from 2004) stating that advice and transaction assistance are equally important services provided by stockbrokers.

Barbara Roper, director of investor protection with the Consumer Federation of America, observed following publication of the survey results that:

"Investors deserve a regulatory approach that they can understand, where financial professionals who use the same titles and offer the same services are subject to the same high standards. The recent court decision over-turning the fee-based brokerage account rule offers an opportunity for the SEC to adopt such an approach. As the SEC confronts these issues, it must acknowledge that disclosure alone is not an answer. What is needed is true functional regulation. As the survey makes clear, investor support for such an approach is overwhelming."

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