Investors expect too much of brokers and insurance agents

Three of four investors have unrealistic expectations of the level of care that financial advisors at brokerage firms are required to give. Seventy-six percent of investors said “financial advisors” at firms such as Merrill Lynch and UBS should put the client’s interests first, found a survey conducted by several consumer organizations. However, brokers do not have a fiduciary duty to their clients, say the Consumer Federation of America, AARP, and the North American Securities Administrators Association. Brokers are merely required to offer their clients “suitable investments,” a standard of care much lower than the fiduciary standard, the organizations said. By contrast, Investment Advisors registered with the Securities and Exchange Commission (SEC) are required to put their clients’ interests first and to adhere to all fiduciary standards.

“Investors are clueless when it comes to the different standards of care that apply to brokers and investment advisors,” said Barbara Roper, director of consumer protection at the Consumer Federation of America. The consumer groups are waiting for the SEC to propose a universal standard for giving investment advice, as required by the financial services overhaul approved by Congress in July. Most consumers support a fiduciary standard for all advisors that requires disclosures of fees or commissions and any potential conflicts of interest that could influence their advice. Although the brokerage industry has given tentative support to new standards, insurance agents—who are also not required currently to adhere to a fiduciary standard—have been among the staunchest opponents of reform, based on comments on reform received by the SEC since July.