Personal Capital Survey Highlights Need for Fiduciary Standard
SAN FRANCISCO, CA–(Marketwired – Jul 29, 2015) – Americans may not understand the phrase, "fiduciary standard," but they would prefer their brokers adhered to it, according to a new Personal Capital survey of nearly 1,400 American consumers.
A whopping 94% of respondents indicated they would seek out alternative counsel if they knew their broker were not required to provide advice in their best interest. In the survey, Personal Capital, a new breed of financial advisor, set out to determine how the Department of Labor's proposed fiduciary rule was understood by the people it would ultimately affect.
They found that many 401(k) and IRA investors don't know if their brokers are legally required to act as a fiduciary in their best interest. In fact, 22% of respondents admitted that they are unaware of the difference between a broker and a financial advisor.
Another 34% admitted they don't know what the fiduciary standard means, while 12% mistook "fiduciary" for "judiciary," citing that the rule referred to "the system of courts that interprets and applies the law."
Defining Fiduciary
Other responses to the question, "What do you think the 'fiduciary standard' means for investment brokers?" were wide ranging and included the following:
• "I don't know but it sounds bad."
• "Follow sane and ethical standards."
• "How the brokers can line their pockets."
• "It is a fake word that is useless as far as requiring financial responsibility."
• "Very little if it means a chance to earn a higher commission from 'pushing' an investment that earns a higher fee."
• "Unfortunately, I don't think it means anything to many in the financial industry."
• "Not as small as 'Fiduciary Small' and not as large as 'Fiduciary Large.'"
• "Nothing. They do not need to adhere to it, but they SHOULD!"
While they may not fully understand the terminology around the fiduciary standard, US investors largely believe that such a regulation should be in place — 93% of respondents indicated that investment brokers should be legally required to act in their clients' best interest. The majority (51%) believe ethical standards for brokers are already the law.
Whether they know about the standard or not, respondents are somewhat skeptical about brokers. When asked to rank various professionals, 51% ranked Uber drivers as the most or second-most trustworthy; 37% chose lawyers for one of their top two, while brokers came in third with 31% of the vote. In addition, less than one-third (30%) of respondents are extremely or very confident that they know all of the fees they pay to their investment advisor or broker. Another 29% are somewhat confident, while 41% are either not so confident or not at all confident.
"A move toward the fiduciary standard is long overdue, and has the potential to clean up the financial services industry for the benefit of investors," said Bill Harris, founder and CEO of Personal Capital. "Retirement savers should be able to know that the advice they receive is from a fiduciary serving their best interest and not accompanied by hidden fees. That kind of opacity is predatory and should be a thing of the past."
A Proposal to Protect Investors
From August 10 through 12, the Department of Labor (DOL) will hold public hearings discussing its proposed fiduciary rule, which would bring a new level of transparency for investors and protect them from broker conflicts of interest.
DOL's proposed rule would require that brokers adhere to the fiduciary standard — the requirement to put clients' interests before their own. Financial advisors are already held to this standard as part of the Investment Advisors Act of 1940, but brokers are held only to a standard of "suitability," which means they must recommend products that are appropriate for each client's situation, and not necessarily in the client's best interest.
