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January 03, 2008 at 07:00 PM
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.
