WASHINGTON BUREAU — If a universal fiduciary standard of care governed all sales of investment products, many life agents would narrow the scope of services they provide for middle-income customers.
About 31% of the members of the National Association of Insurance and Financial Advisors (NAIFA), Falls Church, Va., who participated in a recent survey said they would limit their clientele to affluent clients only if a new universal fiduciary standard led to a 15% increase in compliance costs.
Another 20% said they would no longer offer securities to clients, and 14% said they would try to increase client fees.
The National Association of Insurance and Financial Advisors (NAIFA), Falls Church, Va., is reporting that finding in a summary of results from a recent survey of 3,372 NAIFA members and from a separate survey of 1,008 U.S. consumers.
NAIFA commissioned the surveys to assess the possible effects of the standard-of-care changes that the U.S. Securities and Exchange Commission could make as it implements the Dodd Frank Wall Street Reform and Consumer Protection Act.
The Dodd-Frank Act gives the SEC until January 2011 to complete a study on possible omissions and gaps in the current system for regulating sellers of investments.
Today, a broad fiduciary standard, which requires affected professionals to act in the best interests of the client, applies to investment advisors.
A suitability standard applies to broker-dealers that sell a limited range of products through insurance agents. The suitability standard requires agents and broker-dealers to verify that a
product sold to a consumer appears to suit the consumer’s needs.
Once the SEC completes the regulatory gaps study, it apparently will have the authority to impose a universal fiduciary standard.
When NAIFA asked how many of members’ clients could afford to absorb a standard-of-care-related compliance cost increase, 41% said “few,” “very few” or “none.”
About 18% of the survey participants said they had once been broker-dealer registered representatives but had dropped the registrations; 55% blamed the overall compliance burden, and 14% blamed the high cost of maintaining the license.
For a NAIFA member, maintaining a securities license involves spending an average of 526 hours per year on compliance and examinations and $8,044 per year on compliance staff expenses.
Meanwhile, only 17% of the participants in the consumer survey said they can afford to invest more than $250 per month; that response indicates a clear need for affordable investment advice, NAIFA says.
About 86% of the participants described their level of financial knowledge as “fair,” or less than fair.
“These findings are particularly relevant to NAIFA because many of our members are community-based small business owners who provide affordable insurance and financial services to the middle-income market,” NAIFA President Terry K. Headley says. “As the SEC examines how financial regulations are working to protect the investing public, we need to be aware of the impact a universal fiduciary duty would have on our members’ ability to continue to serve this important market.”