Investors want tougher broker standards

NEW YORK Wed Sep 15, 2010 6:57pm EDT

NEW YORK (Reuters) - U.S. investors are clueless about the different standards for brokers and investment advisers, but they do know they want securities regulators to toughen customer-care rules for anyone giving investment advice.

A survey commissioned by investor advocates and released on Wednesday found that two out of three investors incorrectly thought that stockbrokers have a fiduciary duty to their clients -- which means they must place the interests of the investor first and fully disclose fees and conflicts.

In fact brokers, under current rules, must only determine that an investment is "suitable" for an investor, a far easier standard to meet.

"This survey confirms that investors are clueless when it comes to the different standards of care that apply to brokers and investment advisers," Barbara Roper, Consumer Federation of America's director of investor protection, said in a statement.

The survey comes as the U.S. Securities and Exchange Commission is being asked to study how a number of regulatory reforms in the Dodd-Frank Act passed by Congress in July might affect brokerages. A common fiduciary standard across all types of advisers is one of those changes.

Dodd-Frank would require everyone who gives financial advice to recommend only investments that are in a client's best interest. It is up to the SEC to implement these changes.

SIFMA, the brokerage industry lobbying group, supported a common fiduciary standard during congressional debate. Since the reforms were passed, SIFMA officials have called for flexibility in how fiduciary standards are applied to different activities.

The survey found that 97 percent of those surveyed said all advisers should put clients' interests ahead of their own and disclose all information about fees, commissions and conflicts of interest up front.

Ninety-six percent of investors said the fiduciary standard should also apply to insurance agents.

As it stands now, some advisers can recommend investments that are "suitable," but may not be the best fit for a client.

Stockbrokers and insurance agents, for example, are not required to abide by the fiduciary standard.

Only investment advisers, such as fund managers and registered investment advisers, are currently subject to the rule.

Investment Adviser Association Executive Director David Tittsworth said all financial advisers should be held to the same, high standard.

"We strongly urge the SEC to ensure that the Advisers Act fiduciary duty standard is not watered down or weakened as it implements the Dodd-Frank bill," Tittsworth said in a statement. "Others who provide investment advice to individuals should be subject to this same standard."

The survey of 1,319 individuals was conducted last month for a wide coalition of investor advocates, including the Consumer Federation of America, the AARP, the North American Securities Administrators Association, the Certified Financial Planner Board of Standards, the Investment Adviser Association, the Financial Planning Association and the National Association of Personal Financial Advisors.

(Reporting by Clare Baldwin, additional reporting by Joseph Giannone)

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