The effect of the Department of Labor’s fiduciary rule on investors’ trust in the financial services industry may be limited, as they don’t believe the government can be trusted any more than financial professionals, according to a report released by Hearts & Wallets.
Hearts & Wallets conducted six national focus groups with people who use financial advisors and those who don’t. Participants listened to highlights of the rule that included text from the proposal, and possible impacts as reported by the DOL, Morningstar, United Capital, Pershing, Cerulli and Investopedia. The report identified four main concerns among the respondents.
“In theory, they thought that [the rule] was a good idea,” Laura Varas, CEO and founder of Hearts & Wallets, told ThinkAdvisor on Thursday.
Some participants said they would be unlikely to hire any advisor who didn’t have a fiduciary responsibility to serve their clients’ best interests because they’ve had bad interactions with advisors before, but Varas said that particularly among participants who don’t work with a professional, “they crave trust and they hoped that the fiduciary standard could create trust.”
Hearts & Wallets found almost half — 46% — of consumers are afraid of getting “ripped off by financial professionals,” with almost half of those saying they were particularly concerned. Forty-eight percent of investors with more than $100,000 in investable assets said they were afraid of getting ripped off, as well as half of pre-retirees and 38% of retirees. Investors early in their careers were the most skeptical, with 57% agreeing.
Varas compared investors’ acceptance of the fiduciary rule with that of the Affordable Care Act. “I think people realize that Obamacare sounds great, but that it increased everybody’s premiums.”
In addition to concerns that the government’s rule won’t actually protect consumers, respondents are concerned stripping financial professionals of incentives to provide specific advice will result in less valuable general education.