The Consumer Federation of America (CFA), a consumer advocacy organization, and Zero Alpha Group (ZAG), a group of fee-only investment advisors, revealed in a conference call today that individual investors remain very unclear about whether the financial professionals they deal with for investments and financial advice act in the client’s or the firm’s best interests.
This goes to the very heart of an issue that concerns brokerage firms, investment advisors, and the SEC–which was rebuked by the Court of Appeals in Washington, D.C. when it overturned on March 30 the SEC’s broker/dealer exemption rule, which exempted brokers from regulation as an investment advisor even when they were being paid fees for investment advice. The issue: whether or not investment professionals that deal with the public need to use a fiduciary standard of care, putting their customers’ interests ahead of their own–or their firms. At stake: $300 billion in fee-based accounts at broker/dealers.
The survey was conducted April 12-16, with 1,073 individuals who “described themselves as investors,” according to Graham Hueber, senior research associate, Opinion Research Corporation, the firm that conducted the “Investor Knowledge of Stockbrokers and Financial Planners” study for ZAG/CFA. The survey was a follow up to two similar surveys ZAG/CFA conducted in 2004 when the broker/dealer rule was announced.
The 2007 survey showed that more than half the investors polled–54%–looked “to stockbrokers for more than transactional assistance,” and 29% said that “financial advice is the ‘primary’ service” that stockbrokers offer. Ninety-two percent thought that, for the same type of services, financial planners and stockbrokers should be covered by the “same investor protection rules.” More than half would be less likely to use a “stockbroker providing investment advice” if operating under “weaker investor protection rules than a financial planner,” according to the report.