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Americans Trust Lawyers and Uber Drivers More Than Financial Brokers

The term “fiduciary standard” sounds like a foreign language to many Americans, but our latest survey revealed that it’s a standard most consumers want brokers to adhere to.

Survey Says

In an effort to uncover how well American consumers understand the implications of the Department of Labor’s new proposed fiduciary rule, we surveyed* nearly 1,400 people across the country. Among our findings, 94% of respondents said they would look for other financial counsel if they knew their broker wasn’t required to provide advice in their best interest.

The problem is, a lot of investors who are saving for retirement with 401(k) and IRA accounts don’t know if their broker has to follow fiduciary regulations, which require them to give advice in their clients’ best interest, not their own. 22% of people polled didn’t know what the difference between a broker and a financial advisor is (brokers are not required by law to follow the fiduciary standard, and financial advisors are). 34% of people conceded that they weren’t entirely sure what the fiduciary standard is.

Consumers And The Fiduciary Standard

When consumers are looking for financial advice, whether or not their counsel follows the fiduciary standard or not can ultimately have a large impact on their retirement savings. That’s why we asked survey-takers what they thought the fiduciary standard means for brokers. We got a range of answers, including:

• “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!”

The fiduciary standard may be misunderstood, most Americans think that a regulation like it should be in place. 93% of people want investment brokers to be legally required to act in their best interest, and 51% of people (mistakenly) think that laws are already in place to make this a guarantee.

Our survey revealed that whether folks know about the fiduciary standard or not, many are skeptical of brokers compared to other professionals:

• 51% of people ranked Uber drivers as the most or second-most trustworthy professionals.
• 37% chose lawyers as the most or second most trustworthy.
• Only 31% of people ranked brokers as most trustworthy.
• Just 30% of people feel extremely or very confident that they know about all the fees they pay their investment advisor or broker.
• 29% of people are somewhat confident in their knowledge of fees, and 41% are between not so confident and not at all confident.

Brokers Vs. Advisors

This August 10th-12th, the Department of Labor is going to hold public hearings to discuss the newly proposed rule. If approved, the rule would require financial brokers to adhere to the fiduciary standard – the requirement to put clients’ interests before their own.

Financial advisors, like Personal Capital, 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,” meaning they must recommend products that are appropriate for a client’s situation, but not necessarily in the client’s best interest.

Our CEO, Bill Harris, stated, “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. 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.”

The Fight For Retirement Security

It is our hope that the new fiduciary rule will be approved and implemented as soon as possible, so that more retirement savers get the conflict-free advice they need to make the right financial decisions.

Stay tuned this August for more details on fiduciary rule developments. For more findings around what US consumers feel about investing, check out our survey results here.

*The survey was conducted online by a third party on behalf of Personal Capital within the United States, from June 4 through 7, 2015, among 1,391 adults aged 18 and older. Survey respondents were part of a diverse population of more than 45 million people who take surveys every month.

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  1. Joel

    This article missed the point. The issue with American’s under-funded retirement is the savings rate of Americans. We are not saving enough to cover a safe and secure retirement. With the DOL’s fiduciary rule, it would create ALL financial advice fee for service and not commission based. The real problem is that the middle class is not going to pay a fee of thousands of dollars to start a $100/mo investment. This will compound our current real problem of inadequate savings rates.

  2. Kevin

    The problem is, this new Fiduciary Rule will do little or nothing to protect clients. It’s often a very subjective thing to say what was in the clients best interest. What seems in the best interest today, later with hindsight may be different, and that’s where the lawyers will make a fortune. The trial lawyers are pushing these new rules. They want ambiguity, to later interpret as needed for fault or allegation, for settlements.

    Many FAs and Brokers for the FAs will simply stop offering most investments to most investors, relegating the average person to mutual funds and term insurance and things they cannot get sued for. Investments that create an ongoing steam of fees for the advisor and broker. In the fee model, the investor becomes the FAs and Brokers Annuity 😉

    It is false to equate commissions as bad, and fees as advice. Over time, the person who paid a ‘commission’ will have lees total fees, than the person paying fees all along the way. Most often the commission investment is a fixed product, that will often over time give the client more benefit. But if that same product was purchased through a fee based advisor, you’ll have fees dragging your returns forever.

    It’s not that ‘cut and dried’, commissions bad, fees for advice are good, it’s just semantics that keep people in the fee based model. Most investors should have a blend of investments, some management with a fee advisor, and some with a fixed investments (commission) advisor. A good rule is ‘The Rule of 100’, 100 minus your age, is your suitable risk. 100-60=40, at that point in your life 60% of your money somewhere there is not risk to principle and 40% in managed money, which will hopefully help keep up with inflation, and you’ll have the safe investment for ongoing guaranteed income when the market is down. And a bond fund with a fee advisor is not the place for safety, as it can and will from time to time lose money and need time to recover, time an already retired investor doesn’t have… and no, over time on the average you will not be ok. You will suffer asset erosion.

    So… there is no simple solution to this problem. No amount of bureaucracy will solve the issue, it will lead to more compliance expense, fewer choices for those investors who do their due diligence, and generally line the pockets of lawyers and armies of bureaucrats.

    Better; insist people take responsibility for themselves. I require clients to do homework. No homework, you cannot be a client. It works. My client gains a sense of confidence, and it is easier to get them to save and make better financial decisions. Knowledge is a wonderful thing.

    I suggest a requirement for the client/investor; Require they take and pass a simple test to invest. Something that you can verify they actually read it. Do it online. You can now take your drivers written test online, college courses for a diploma online, why not answer some questions, before buying an investment? Signing an application with disclosures is not enough, few actually read it anyway, even the courts throw it out, all the client has to say is, I trusted him and did’t read it and the court generally throws it out. The courts will hold you to a fiduciary trust standard if you are sued, it already exists.

    The bureaucrats solution is always more bureaucracy, and the lawyers feast on all the technicalities and twists and turns of that bureaucracy. We already have laws, allot of laws, allot of compliance and armies of bureaucrats and lawyers, and still there seems to be problems. More of the same will do nothing. Knowledge is the solution. Ensure the client knows their risk and understands what they are buying, be it fees of commission is not relevant. AND that sometimes, investments lose money. That is not fraud. It’s a loss.
    It happens. Don’t want it, buy and annuity.

    Again, it is a myth that somehow fees are more honorable than commission, and one is a fiduciary and one is not. It’s semantics. And it’s a myth pushed by those same brokers who make a fortune off the ongoing and forever until you die… fees. If their advisors want to sell a commission investment, even in the best interest of the client, the brokers generally do not allow it, as the broker will lose income over time (there’s your conflict). I’d rather pay a one time commission and be done, and leave an appropriate amount with an active management.

    And it’s a myth that this Fiduciary Rule will help anyone, but bureaucrats and lawyers. It will likely result in less choice and less service for the ‘average Joe/Josephene’ who cannot afford or his/her account is not large enough for the high priced advisor and his fees. Because fees WILL be going up, or service and choices will be going down. Bureaucracy…oops I mean Compliance, always results in higher expenses. And those expenses and costly law suits must come from somewhere.

  3. Bob

    It doesn’t sound like the person writing this article knows the difference between a financial advisor and a broker either… Many firms call their brokers Financial advisors now. The main difference is the capacity the broker is working in. If he is compensated in a transactional capacity through commissions, there is not a fiduciary obligation. If he is registered as an investment advisor and is charging clients for fee based services, than he would be considered a fiduciary. Very few firms operate on the commission based model anymore so virtually all brokers are dual registered as investment advisor representatives.

    Why pay an ongoing fee for a robo advisor when you can find a cookie cutter type template for an allocation model which is what they use for free online, and then go to Fidelity or Schwab and buy commmsion free ETFs and pay nothing.

  4. T. James

    Very interesting survey. With retiring baby boomers taking money out of 401(k) accounts they will increase their roll overs of employer plan assets into IRAs. This is bad business by the wirehouses, broker mistrust will cause wirehouses to miss out on capturing IRA rollover assets.

    IRA rollover activity will increasingly fuel demand for passive ETFs which offer lower costs and an index-matching strategy beating performance of most active mutual funds. With rates set to rise and the market overdue for a correction, we also see increasing demand for alternatives offered via self directed IRAs, which currently represent a meager 2% of retirement savings.