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Industry Spotlight > Broker Dealers

Rand Study of Advisor, B/D Industries Is Out

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The much-anticipated RAND study of the broker/dealer and investment advisory industries is complete, and its findings confirm that investors indeed have trouble distinguishing between advisors and brokers. As the study’s authors note, “Our analysis confirmed findings from previous studies and from our interviews with stakeholders: Investors had difficulty distinguishing among industry professionals and perceiving the web of relationships among service providers.”

The survey, which was completed by 654 U.S. households, asked about perceptions of the differences between investment advisors and broker/dealers, experience with financial service providers, and the level of satisfaction with the services received. Given their confusion about who’s who, the Rand study found the investors polled were generally satisfied with their financial service provider. “Overall, we found that the industry is very heterogeneous, with firms taking many different forms and offering a multitude of services and products. Partly because of this diversity of business models and services, investors typically fail to distinguish broker/dealers and investment advisors along the lines that federal regulations define. Despite their confusion about titles and duties, investors express high levels of satisfaction with the services they receive from their own financial service providers.”

SEC Chairman Christopher Cox said in a prepared statement that the Rand study will “assist the Commission’s efforts to update our regulations to improve investor protections in today’s new marketplace.” He added that SEC staff is “now studying the report and the potential regulatory implications of its findings.”

The SEC commissioned the Rand Corporation, a nonprofit research organization, to perform the study following a March 2007 Court of Appeals decision that overturned a 2005 SEC rule permitting non-advisor broker/dealers to charge fees to investors based on account size. The SEC and Rand agreed that Rand would deliver its final, peer-reviewed report in pre-publication format on Dec. 31, 2007, three months earlier than the contract had originally required.

The study also included six focus groups with 10 to 12 participants each allowed for interactive discussion of the same topics and offered the opportunity to probe for the assumptions and reasoning that lay behind certain responses.

According to the study, about two-thirds of all survey respondents were classified as “experienced” investors (“that is, they held investments outside of retirement accounts, had formal training in finance or investing, or held investments only with retirement accounts but answered positively to questions gauging their financial understanding”). Of the 349 respondents who reported using a financial service provider, 73% seek professional assistance for advising, management, or planning, and 75% seek professional assistance for conducting stock market or mutual fund transactions, the study says.

Rand presented respondents with a list of services and obligations and asked them to indicate which items applied to investment advisors, brokers, financial advisors or consultants, or financial planners. “Their responses indicate that they view financial advisors and financial consultants as being more similar to investment advisors than to brokers in terms of services and duties. However, regardless of the type of service (advisory or brokerage) received from the individual professional, the most commonly cited titles are generic titles, such as advisor, financial advisor, or financial consultant.”

The study found that focus-group participants shed further light on this confusion when they commented that “the interchangeable titles and ‘we do it all’ advertisements made it difficult to discern broker/dealers from investment advisers. Comments from focus-group participants expand on the survey responses. Like survey respondents, focus-group participants indicated that they would be willing to seek services from an investment adviser or a broker, but for different reasons. The compensation structures, disclosure requirements, and legal duties make investment advisers appealing.”

View the study at


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