Most Brokers Think Uniform Fiduciary Standard Unlikely

Will the regulatory push for a uniform fiduciary standard die on the vine? Brokers may not be best equipped to predict regulatory outcomes, but most of them do not expect such a standard to be implemented, according to survey results released today by Aite Group.

Will the regulatory push for a uniform fiduciary standard die on the vine? Brokers may not be best equipped to predict regulatory outcomes, but most of them do not expect such a standard to be implemented, according to survey results released today by Aite Group.

And yet, most of them also thought it would do good: the number of survey respondents who said implementation of the fiduciary standard would help restore investor trust in financial services firms was greater than the number who did not. More respondents also said implementation of a uniform fiduciary standard would result in greater use of financial planning.

The results are based on a survey of 402 financial advisors, conducted online in the fourth quarter of 2009. Brokers, who are currently regulated by the suitability standard and would feel the most significant impact from such a regulatory change, accounted for 84 percent of respondents. Fee-only independent RIA advisors, who are already governed by the fiduciary standard, accounted for 16 percent or respondents.

“While independent RIAs have long cited the fiduciary standards of their industry as a major differentiator, its implementation for retail brokers could remove it as such,” says Alois Pirker, research director with Aite Group and author of this report. “Brokers believe that a fiduciary standard would lead to an advice model very similar to the one utilized by independent RIAs. RIAs, on the other hand, believe that brokers would have a hard time adjusting to the requirements of a fiduciary standard, and that they themselves will not lose their competitive fiduciary advantage as a result of this measure.”

Just over half of respondents to the survey, or 53 percent, gave the fiduciary standard less than a 50 percent chance of being put into place, saying the recent market bounce and economic recovery as well as lobbying efforts by the brokerage firms would reduce support for the measure. Meanwhile, 7 percent of respondents gave it no chance of passing. On the other hand, about 16 percent said there is a 100 percent chance that such a standard will be implemented.

Some 40 percent of respondents agreed the measure would restore trust in financial services firms, while 26 percent did not (34 percent didn’t know). Meanwhile, some 43 percent of respondents agreed that a fiduciary standard for brokers would result in a greater use of financial planning, while 22 percent did not. (Another 35 percent said they didn’t know.) Finally, some 46 percent of respondents agreed that a fiduciary standard would promote greater focus on investment risk and reduced focus on returns, while 22 percent disagreed, and 31 percent didn’t know.

Today, some brokerage firms (like UBS) require their brokers to act as fiduciaries whenever they offer financial planning services of any kind, while other firms (like Wells Fargo Advisors) have created a process called “investment planning,” which is considered “incidental” to the traditional brokerage services they offer under SEC rules, and therefore, exempt from the fiduciary standard. At these firms, a central financial planning team, staffed by specialist financial planners, supports the brokers with comprehensive financial planning services that are separately provided under an investment advisory agreement with the client, Pirker writes in the Aite report.

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