More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Updating Form ADV and Form U4 When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors. When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.
In case you missed it, on March 11, the Financial Planning Coalition announced the results of its recent survey of financial consumers about their attitudes toward advisor regulation. The results of this rather truncated poll—which included three questions asked of 1,030 Americans with investible assets ranging from 0 (27%), to less than $250,000 (61%) to over $250,000 (13%)—were admittedly striking:
- 80% agreed that “laws currently in place do not do enough to protect consumers from being taken advantage of by financial advisers.”
- 93% agreed that “when you receive investment advice from a financial adviser, the person providing the advice should put your interests ahead of theirs and should have to tell you up front about any conflicts of interest that could potentially influence that advice.”
- 84% agreed that “financial advisers should be regulated by the federal government to protect investors and build consumer confidence in financial services.”
What’s more, these impressive numbers were sufficiently striking for the Coalition (comprising the CFP Board, the FPA and NAPFA) to issue a call to action to Washington: “These results should serve as another wake-up call for the SEC, Congress and the Administration to protect American investors who continue to be vulnerable to fraud and abuse while key Dodd-Frank investor-protection reforms are mired in rulemakings or need follow-up congressional action.”
As an advocate for at least two of the three ideas put forward by this survey (I tend to believe that a dedicated RIA SRO overseen by a government agency would result in better investor protection) I am encouraged by these results, as I suspect most advisors would be. Yet, perhaps due to some personality quirk, I tend to read surveys with an eye toward what messages the dissenters may have to tell us as well.
In this survey, for example, there were actually four possible answers to each of those four statements: Strongly agree, Somewhat agree, Somewhat disagree, and Strongly disagree. The above figures for agreement were the combination of those who strongly and somewhat agreed with the statements.
However, when we drill down a little farther by separating those who “strongly” agreed from those who only agreed “somewhat,” we get a more troubling picture. For instance, while 80% agreed that “laws don’t do enough to protect consumers…,” nearly half of those responding only agreed “somewhat.” To my mind, this seems a rather curious answer, as laws either “do enough” or they don’t.
So it’s not clear to me what essentially half the respondees (or nearly two-thirds if we count the additional 16% who “somewhat disagreed”) are communicating. Perhaps it is the feeling that financial consumers do indeed need better protections, but they have little confidence that more laws would be likely to solve the problem.
This speculation seems to be supported when we drill down into the answers behind the 84% who agree that the federal government should regulate financial advisors. Of that 84%, more than half (43 percentage points) only agreed “somewhat.” If we add in the other 12% who “somewhat disagreed,” 55% of respondees appear to have no strong feelings on the subject, one way or the other. Is this another indication of ambivalence about the involvement of the federal government?
Finally, and most baffling to me, we have the results of the final statement: that financial advisors should put their clients’ interests ahead of their own when giving financial advice. While 93% “agreed,” 26 points of respondents only “somewhat agreed.” Another 4% of total respondents “somewhat disagreeing” means 30% of respondees are apparently not sure.
How can people not be sure they want an advisor who puts their interests first? I can only guess that perhaps that they are thinking of order placing, where they only want a broker to execute their purchases? Or maybe they don’t believe an advisor will really put their clients’ interests first?
It seems to me that despite the glowing support the Coalition’s survey responses seems to give to stronger fiduciary laws and regulations for all retail “advisors,” the deeper message is that the independent advisory profession—and the media—need to do a much better job of educating people about the benefits of independent, fiduciary advice, and how to identify advisors who truly provide it.
So how do advisors themselves feel about a stronger fiduciary standard for all advisors, and how are they “putting clients first” absent a single standard? We invite you to participate in the third annual fiduciary survey sponsored by AdvisorOne and Fi360.—Ed.