More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Books and Records Rule Thorough and complete books and records enable RIAs to demonstrate that they have fulfilled their fiduciary obligations to clients and complied with applicable rules and regulations.
Advisory and consumer trade groups released a joint survey on Wednesday which shows that the majority of investors are confused about which type of advisor is required to act as a fiduciary on their behalf, and that the majority of investors believe all financial professionals providing investment advice—including insurance agents--should be held to a fiduciary standard.
The joint study performed by the ORC/InfoGroupwas released by the Consumer Federation of America (CFA), American Association of Retired Persons (AARP), the Investment Adviser Association (IAA), the Financial Planning Association (FPA), the CFP Board, the North American Securities Administrators Association (NASAA), and the National Association of Personal Financial Advisors (NAPFA). The phone-based survey of 1,319 investors conducted August 19-23, found that nine out of 10 U.S. investors (or 91%) believe a stockbroker and an investment advisor who provide the same kind of investment advisory services should have to follow the same investor protection rules.
“Investors don’t understand the difference [between advisors and brokers] because the differences no longer make any sense,” says Barbara Roper, director of consumer protection for the CFA. “Investors view [advisors and brokers] as indistinguishable; the clear conclusion is that you have to regulate them accordingly, and that means applying the Advisers Act fiduciary duty to their advice and recommendations about securities.” Roper says the survey results were submitted today to the SEC, and individual copies of the survey results were also sent SEC Chairman Mary Schapiroand the SEC Commissioners.
On a conference call with reporters on Wednesday to discuss the findings, Roper said that the survey results answer two questions that Congress, under the Dodd-Frank Act, asked the Securities and Exchange Commission to address: whether retail investors understand the differences between brokers and advisors, and whether the existence of different standards for brokers and advisors are confusing. As the survey results revealed, Roper said, Investors “don’t understand the different services that are offered by brokers and advisors.”
Denise Voigt Crawford, Texas Securities Commissioner and the immediate past president of NASAA, told reporters on the call that “investors who receive advice about securities logically think that their interests come first.”
(See Crawford's latest blog posting on AdvisorOne.com)
Chief among the survey findings were that:
* Nine out of 10 U.S. investors (91%) 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 theirs 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 U.S. investors (96%) agree that the fiduciary requirement should extend to insurance agents selling investments.
* At the same time, there is widespread misunderstanding about which financial professionals are held to the fiduciary standard:
Three out of five U.S. investors mistakenly think that “insurance agents” have a fiduciary duty to their clients.
Two out of three U.S. investors are incorrect in thinking that stockbrokers are held to a fiduciary duty.
76% of investors are wrong in believing that “financial advisors” – a term used by brokerage firms to describe their salespeople -- are held to a fiduciary duty.
By contrast, 75% of investors think the fiduciary standard is in place for “financial planners” and 77% say the same about “investment advisers.”