Investors mistakenly believe brokers have fiduciary duty


A new survey shows the majority of investors are confused about which type of advisor is required to act as a fiduciary on their behalf, and that the majority of investors believe all financial professionals providing investment advice, including insurance agents, should be held to a fiduciary standard.

The survey, released by the Consumer Federation of America, AARP and North American Securities Administrators Association, says 67 percent of investors think financial advisers, which is just a fancy term for salesperson, must uphold a fiduciary duty to their customers.

"Investors don't understand the difference [between advisors and brokers] because the differences no longer make any sense," Barbara Roper, director of consumer protection for the CFA, said. "Investors view [advisors and brokers] as indistinguishable; the clear conclusion is that you have to regulate them accordingly, and that means applying the Advisers Act fiduciary duty to their advice and recommendations about securities."

The Securities and Exchange Commission is expected to submit a report to Congress in January on investor protection, with the option to create a universal standard as part of the financial- services overhaul bill that became law July 21. The rule would apply to anyone who gives investment advice, including those insurance agents who are dually registered as brokers.

Key findings of the study:

* 34 percent of investors said that financial advice is the primary service offered by stockbrokers, even though their main job is actually to buy and sell stocks.

* 93 percent said brokers should be required to disclose conflicts in advance, such as payments from companies for selling their products.

* 60 percent mistakenly think that "insurance agents" have a fiduciary duty to their clients.

* Two out of three U.S. investors are incorrect in thinking that stockbrokers are held to a fiduciary duty.