Investors may expect too much of brokers, insurance agents

  By Bruce Jentner
Bruce Jentner

Three of four investors have unrealistic expectations of the level of care that financial advisors at brokerage firms are required to give, found a recent survey: 76% of investors said “financial advisors” at firms such as Merrill Lynch and UBS should put the client’s interests first.

However, brokers have no fiduciary duty to clients, says the report by the Consumer Federation of America, AARP, and the North American Securities Administrators Association. Brokers are merely required to offer clients “suitable investments,” a standard of care much lower than the fiduciary standard.

In 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 of the Consumer Federation of America.

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. Most consumers support a fiduciary standard for all advisors that requires disclosures of fees or commissions and any potential conflicts of interest. The brokerage industry has given this tentative support, although insurance agents – also not bound by fiduciary standards – oppose it, based on comments received by the SEC.

Bottom line: selection of a financial advisor matters to your financial future.