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B/D Briefing: Surprise Broker Sentiment

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Days after Sen. Chris Dodd (D-Connecticut), the chairman of the Senate Committee on Banking, Housing, and Urban Affairs, introduced on November 10 a sweeping plan for financial services reform that would including a fiduciary duty for brokers who provide investment advice (see page 15), SEI Advisor Network and The Committee for the Fiduciary Standard released findings of a survey intended to gauge how well brokers and investment advisors understand a fiduciary standard and whether they support such a standard.

The November 10 draft of the Senate’s plan includes a requirement that “Brokers who give investment advice will be held to the same fiduciary standard as investment advisers–they will be required to act in their clients’ best interest,” according to the Banking Committee’s summary.

“The Fiduciary Standard Survey” of 890 brokers and investment advisors shows that a “majority of brokers support the fiduciary standard,” according to Knut Rostad, regulatory and compliance officer at Rembert Pendleton Jackson, a Falls Church, Virginia, RIA firm. Rostad is chairman of The Committee (this writer is a member of the Committee as well). There was a “high level of understanding and agreement between brokers and advisors on key elements of the fiduciary standard,” Rostad noted.

Some surprising attitudes are found in the survey responses. A majority of brokers–53%–”believe all financial professionals who give investment and financial advice should be required to meet the standard.” An even higher 86% of fee-only and fee-based investment advisors agree. In this study, the term “brokers” includes those who are compensated by commissions only as well as those who receive a combination of commissions and fees. “Investment advisors” are defined to include both fee-only and fee-based advice givers.

Perhaps the biggest revelation in the survey’s findings is, “the support among brokers for the fiduciary standard in light of the industry’s historic opposition to it,” Rostad says: 61% of brokers and 89% of investment advisors say that they “should not be allowed to ask their clients to waive the standard of care.”

There is significant agreement between brokers–75% agree–and investment advisors–82% agree–that, “All professionals who provide financial or investment advice should be required to put the clients’ best interest first at all times.”

There was high correlation in attitudes of brokers and investment advisors in core areas, according to the survey. For instance, 80% of brokers and 98% of investment advisors reported “understanding what the fiduciary standard requires fairly well or very well.” Counter to what one might expect, more brokers–78% of those participating in the survey–than advisors, 77%, said that, “they must disclose their compensation and all investment expenses in writing.”

There was less agreement about whether “adhering to accepted fiduciary procedures can reduce an advisor’s liability in the event of poor investment performance;” 60% of brokers and 72% of advisors said they believe that is the case.

When asked whether they believe that the fiduciary standard: “should be modified to better fit brokers’ selling activities,” 49% of brokers and 91% of investment advisors say they do not believe so.

On the important issue of dual registration, or “two hats,” there was more of a split between brokers and advisors, the study found. When it comes to compensation however, 85% of brokers and 91% of advisors surveyed “understand that the fiduciary standard permits commission products.” The numbers were in near agreement regarding proprietary products as well: 91% of brokers and 93% of advisors “understand that proprietary products are permitted under the fiduciary standard.” For details from the survey, please go to

With vast regulatory changes like these on the horizon, it will be interesting to watch how brokers and investment advisors evolve to meet the changes and opportunities this legislation will present if passed. While investment advisors already must abide by the fiduciary standard, they will also have changes to cope with, including a potential change in regulators. They are currently regulated by the SEC, but there is an amendment in the Investor Protection Act, which was passed by the House Financial Services Committee on November 4, from Sen. Spencer Bachus (R-Alabama), to have FINRA, the broker/dealer self-regulator, bring RIAs that are part of dually registered broker/dealers under FINRA control.

Kate McBride is editor-in-chief of She can be reached at [email protected].