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Brokers Taking Hits from Surveys

Brokers continue to take hits for Wall Street's research conflicts and the sluggish market, according to two recent polls that show investors are not seeking advice from brokers.

Brokers continue to take hits for Wall Street’s research conflicts and the sluggish market, according to two recent polls that show investors are not seeking advice from brokers.

Last week, a survey by NFO WorldGroup showed that one-fifth of millionaire investors are working without financial advisers, an increase of 30 percent over last year.

Today, a poll by Weiss Ratings shows that only 6.3 percent of investors cited brokers as their primary source for investment advice–compared to 11.3 percent for financial planners. More than 43 percent of the investors cited "personal research" as their primary source for investment advice.

"In this economy, affluent investors are demanding excellence, not mediocrity, and they simply aren't getting it from the mainstream of the adviser community," according to David Thompson, director of affluent market research at NFO Financial Services.

The NFO poll, which covered 1,500 households with investable assets of at least $500,000 and a separate pool of those with $1 million or more, indicated that affluent investors are reacting to the steep declines they have suffered in their portfolios.

Respondents gave advisers a C grade for their performance over the last few years, noting that many lack the ability to solve problems. Although most affluent investors continue to work with full-service brokerages, they are increasingly dissatisfied, according to NFO. Brokers rated only a D grade, and certified financial planners a B.

"No one can tell me that a financial planner does a better job than us," says one Smith Barney rep. "No way. The only difference is that they don’t stock-pick, and believe me we’re doing less and less of that and doing more and more of managed money and asset-based business."

What’s affected perception of brokers and big brokerage firms are the accounting scandals and myriad conflicts of interest that exist between banking and research departments. Wall Street has been pilloried for directing research to service its big banking clients, to the detriment of retail investors. As a result, some wealthy folks are switching to unaffiliated planners.

NFO WorldGroup found that 23 percent of millionaire households now use planners instead of brokers, up from 14 percent in 2000. However, a recent Cerulli Associates study that suggests that RIAs are being squeezed by competition–including wirehouse brokerages–in this bear market, largely because brokerage firms have embraced some of the old credos of financial planning and advice that independent RIAs once did.

"I don’t place a lot of credence on surveys and polls," says a Prudential Securities broker. "The reason being is that our business has become more and more of a relationship business."

The results of the Weiss online survey were based on voluntary responses from 1,093 individuals. Asked the question, "What is your primary source for investment advice?," respondents were asked to vote once for one of eight choices. Personal research topped the list at 43.3 percent, followed by investment newsletters (28.6), financial planners (11.3), stockbroker (6.3), other (3.8), media (3.5), Wall Street analysts (1.8), and friends/family (1.4).

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