If you have a financial advisor at a brokerage firm, you may think that that adviser is required to put your interests first -- that he or she has a fiduciary responsibility to you, in other words.
If you think that, you're in good company: so do 76 percent of U.S. investors. But unfortunately, they're wrong.
Investors are clueless when it comes to the different standards of care that apply to brokers and investment advisers, Barbara Roper, director of investor protection for the Consumer Federation of America, said in a statement. This lack of understanding is not because investors are stupid; it is because, bluntly stated, the policy itself is stupid.
The distinction is a fine one but, like most fine distinctions, very important. A salesman -- or broker -- at, for example, Bank of America's Merrill Lynch or any other brokerage firm may be called a financial adviser but what that person really is is a salesman, whose job is to sell you stocks, bonds and whatever else the firm is peddling at the moment.
A registered investment adviser, on the other hand, does have a fiduciary obligation to put clients best interests first. All a broker must do is offer clients suitable investments.
The survey was released today by groups including the Consumer Federation of America, AARP and North American Securities Administrators Association.
The Securities and Exchange Commission is due to submit a report to Congress in January on investor protection with the option to create a universal standard as part of the financial-services overhaul bill that became law July 21. The rule would apply to anyone who gives investment advice, including those insurance agents who are also registered as brokers.
Rules needed
There's not much doubt what investors want: 97 percent of survey respondents said they support a fiduciary standard for investment professionals providing advice, including requiring disclosure of any fees or commissions they may earn and any conflicts of interest that could potentially influence their advice.
Older Americans expect financial professionals to put their clients interest ahead of their own when giving investment advice, but thats not a requirement for all professionals today, said Nancy LeaMond, executive vice president of the AARP. The need for the SEC to be a watchdog for investors is even more urgent.
The survey was conducted in August among a sample of 2,012 people age 18 and over by Omaha, Nebraska-based Infogroup Inc., a provider of market research. Most of the findings were based on responses from the 1,319 people who identified themselves as investors.
