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Joint survey flags inconsistencies with term "fiduciary"

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Given the aggressive lobby campaign the industry is waging against the Department of Labor’s proposed fiduciary standard for retirement plan advisors, you might think that: (1) most insurance and financial professionals are averse to applying the term to themselves; and/or (2) understand what being a fiduciary entails.

Think again. According to a new study, the vast majority, or 80 percent, of advisors considered themselves to be a fiduciary. Yet nearly 4 in 10 (37 percent) deem the term “meaningless” because they lack an understanding of a fiduciary’s function.

CLS Investments and MarketCounsel disclose these findings in a survey of more than 200 independent financial service professionals about the fiduciary standard of care. The study gauges advisor perception with regards to the term “fiduciary:” how advisors understand the term, whether they deem it worthwhile to use the term in describing themselves with clients, and whether it should be uniformly applied across the financial advisory industry’s channels.

More than 8 in 10 (83 percent) of survey respondents who identify as fiduciaries completely or partly disagree with the statement, “Fiduciary oversight is applied consistently throughout my organization.” Additionally, nearly 70 percent of those polled say being a fiduciary is not determined by how you are compensated, or how the standard of care is disclosed. And 75 percent say acting solely in a client’s best interest defines a fiduciary.

“While a clear definition around the term is needed to move forward, the core of the issue is larger than the industry’s lack of regulatory clarity around the term fiduciary; the real issue is that the retail customer doesn’t understand what that term really means,” says Todd Clarke, CEO of CLS Investments. “Until we can help the lay investor understand what it really means to be served by a fiduciary and why they should work with one, I think we will continue to see these inconsistencies and feedback industry-wide. Without demand from the investor, we will maintain the status quo.”

The survey also reports these findings:

  • 70 percent of advisors market themselves as fiduciaries and most, nearly 90 percent, communicate the term verbally versus using it in marketing materials (70 percent of fiduciary respondents).

  • 20 percent of respondents who consider themselves a fiduciary do not use the term to describe their services.

  • 50 percent of all respondents and 80 percent who describe themselves as fiduciaries say the standard of care is not well regulated.

  • Advisors say the standard isn’t regulated well because

    • 1) the meaning of the term isn’t clear (39 percent);

    • 2) enforcement is inconsistent (46 percent); and

    • 3) a lack of understanding of the fiduciary function (37 percent) renders it meaningless.

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