WASHINGTON — Insurance sales representatives and registered representatives of broker-dealers now play a “significant role” in many registered investment adviser (RIA) firms, according to an analysis of new Securities and Exchange Commission data.
The report indicates that many RIAs have decided to supplement their fee compensation with commission compensation, according to officials of the Institute for the Fiduciary Standard, which analyzed the data.
The data was gleaned from filings by RIAs on Securities and Exchange Commission Form ADV, which requires them to disclose their compensation, conflicts of interest information, and the registrations of their employees.
Institute officials acknowledge that an analysis of the data raises the question of what impact the emerging sales efforts of RIAs may have on their ability to provide objective advice to clients.
The report was released as part of the Institute’s “Fiduciary September,” the Institute’s annual month-long special recognition of the vital role of fiduciary duties for investors and the capital markets.
“What we do not know from the data is how prevalent in any particular firm is commission compensation, and how well the firm manages these conflicts of interest, or whether the commission compensation earned is credited back to the client,” Institute officials said. “What we do know is that firms that choose not to have advisors who are also registered reps or insurance reps also do not have these conflicts to address.”
The report indicated that two percent of the RIAs and 89 percent of the large banks sell securities from advisory clients or to advisory clients.
Knut A. Rostad, president and founder of the Institiute, and Brian Hamburger, of Market Counsel, and the Institute’s Best Practices Board general counsel, said one finding of the analysis is that RIAs, in pursuit of growth, appear to be more willing to accept conflicts of interest.
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Before 2008, RIAs appeared willing to “walk away” from growing their business in order to reduce conflicts of interest, the two said. Post-2008, “growth rates are higher in firms with multiple revenue streams,” they said.