US Investors Support Fiduciary Standards Overhaul

by Glen Shapiro, LawAndTax-News.com, New York

22 September 2010

As the US Securities and Exchange Commission (SEC) weighs feedback on how to implement new financial reforms enacted by Congress, a new national survey has shown that most US investors are unaware of which financial professionals are required to operate under a ‘fiduciary standard’ which requires financial professionals to put their clients' interests ahead of their own.

At the same time, the survey shows resounding support among US investors for rules that would enforce such a standard on financial professionals providing investment advice.

The noteworthy findings of the survey include:

• 91% of US investors think that "a stockbroker and an investment adviser (who) provide the same kind of investment advisory services … should have to follow the same investor protection rules."
• Nearly all investors (97%) agree that "when you receive investment advice from a financial professional, the person providing the advice should put your interests ahead of their own and should have to tell you upfront about any fees or commissions they earn and any conflicts of interest that potentially could influence that advice”.
• Nearly all US investors (96%) agree that the fiduciary requirement should extend to insurance agents selling investments.

Meanwhile, the findings show that there is widespread misunderstanding about which financial professionals are held to the fiduciary standard:

• Three out of five US investors mistakenly think that "insurance agents" have a fiduciary duty to their clients.
• Two out of three US investors are incorrect in thinking that stockbrokers are held to a fiduciary duty.
• Three in four investors are incorrect in believing that "financial advisers" – a term used by brokerage firms to describe their salespeople - are held to a fiduciary duty.
• Likewise, 75% of investors think the fiduciary standard is in place for “financial planners” and 77% for “investment advisers”.

Commenting, Barbara Roper, Director of Investor Protection at the Consumer Federation of America, said:

"This survey confirms that investors are clueless when it comes to the different standards of care that apply to brokers and investment advisers. They don't even understand the differences between brokers, investment advisers, and financial planners, let alone that they are subject to different legal obligations to the client when they perform the same services.”

“This lack of understanding is not due to stupidity but is because, bluntly stated, the policy itself is stupid. No one in their right mind would create a system in which individuals who call themselves by separate titles and offer services that are indistinguishable to the average investor are subject to two different standards.”

“This is precisely the world that SEC policy over the past two decades has helped to create. Now, Congress has given the SEC a chance to fix those past errors by adopting a policy that makes sense to investors and puts their interests first. "

David Tittsworth, Executive Director of the Investment Adviser Association, added: "Investment advisers have been subject to the fiduciary duty standard under the Investment Advisers Act for many decades. We strongly urge the SEC to ensure that the Advisers Act fiduciary duty standard is not watered down or weakened as it implements the Dodd-Frank bill. Others who provide investment advice to individuals should be subject to this same standard of care in order to provide consistency and for the protection of investors."

The poll of 1,319 investors was conducted on August 19-23, 2010, for the Consumer Federation of America, AARP, the North American Securities Administrators Association, and a number of leading investment adviser and financial planning organizations, including the Certified Financial Planner Board of Standards, Inc., the Investment Adviser Association, the Financial Planning Association and the National Association of Personal Financial Advisers.

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