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.
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.