Industry Spotlight > Broker Dealers

Advisors Speak: Do BDs Want to Know How Advisors Feel About Industry?

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I read with great interest Melanie Waddell’s short piece last week on the Financial Services Institute’s new app that will allow the “advisors” affiliated with its member firm to easily communicate their positions on various industry and political issues of the day. An FSI release was quoted explaining that its new app gives advisors “the mobility they need to speak with one voice and influence the regulatory and legislative processes on the go.”

Clearly a major advance in the Internet’s “let every voice be heard” potential, yet, the FSI’s breathless enthusiasm underscores an assumption by many in the Dodd Frank reregulation debate—namely the BDs, FINRA, the SEC and Congress—that brokers and their broker-dealers are of one mind on the issues involved. Fueled by the memory that the FSI was formed nearly ten years ago, when the FPA politely asked the BDs to leave, (citing conflicts of interest between brokerage firms and their affiliated financial planners), I suspected that “one voice” might not be as uniform as the FSI and others would believe. And I wondered whether anyone had actually tested this prevailing assumption.

Then I remembered the fi360/AdvisorOne’s 2012 Fiduciary Survey that was covered by the survey’s editor, Kate McBride, in a three-part series in AdvisorOne last month. The survey provides some compelling indications that most brokers do not share the SIFMA/FSI/FINRA party line on number of key issues. To my mind, this is important information that should not be overlooked by the policymakers on the House Financial Services Committee: If they are truly interested in increasing investor protections, they should at least listen to the professionals who work directly with those investors.

To be sure, the Fiduciary Survey was based on a relatively small number of participants—380—and registered reps represented slightly less than half of those—45.4%—which was divided between 10% brokers and 35.6% dually registered advisors. RIAs/IARs comprised the other 54.5%. Yet, on four key assumptions upon which the securities industry has consistently based its position—investor understanding, disclosure, titles, and the importance of fiduciary advice—advisors of all three stripes seem to be of one mind to the extent that their collective opinions cannot be discounted. Here’s how the answers to these key questions broke down: 

  • Do you believe investors understand the differences between brokers and investment advisors? 97% said “no”: 98.8% RIA/IAR; 100% Reg. Reps; 94.0% Dually registered. 
  • Are disclosures alone sufficient to manage conflicts? 81% said “no”: 83.8% RIA/IAR; 80.0% Reg. Reps; 76.1% Dually registered. 
  • Do you believe the titles “advisor,” “consultant,” and “planner” imply that a fiduciary relationship exists? 71% said “yes”: 74.1% RIA/IAR; 63.3% Reg. Reps; 69.2% Dually registered. 
  • Does the knowledge gap [between professional advisors and individual investors] make fiduciary advice much more important for ordinary investors? 85% said “yes”: 93.1% RIA/IAR; 72.4% Reg. Reps; 76.9% Dually registered.

That’s some pretty compelling data: it seems that advisors do in fact speak with one voice. According to the folks on the front lines, the current (FINRA regulated) structure does indeed confuse investors, disclosures don’t work (hello, SEC?), current titles mislead investors, and investors need fiduciary advice. The real question is whether the FSI, the rest of the securities industry and Congress have any interest in listening.