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Investors Seek Uniform Fiduciary Duty Rules

Though the Securities and Exchange Commission have yet to set a universal standard of care for brokers and investment advisers, one thing is certain: Investors want a single standard.

Out of 1,319 investors polled, over 90% of investors want a broker and investment adviser to have and follow the same fiduciary duty and investor protection rules, according to a survey released on September 15 by the Opinion Research Corp./Infogroup. In addition, 97% believe that financial professionals should put investor interests ahead of their own, and be forced to disclose fees and conflicts of interest, similar to what investment advisers are required to do.

The survey also revealed that over half of investors do now know the different standards of care that certain advisers must meet. And at least 60% of those surveyed responded that they assume that insurance agents and stockbrokers are already held to a fiduciary duty. This assumption is wrong, as brokers only have to satisfy a suitability requirement, i.e., investments must meet a client’s investment objectives, risk tolerance and time horizon.

According to Barbara Roper, the director of investor protection at Consumer Federation of America, “This lack of understanding is not because investors are stupid. It’s because the policy itself is stupid.”

The supporters of a uniform fiduciary duty hope that the survey results will spur the SEC to clarify the confusion and establish a universal fiduciary standard of care for retail investors. Under the Dodd-Frank financial-reform law, the SEC must submit to Congress by Jan. 2011 a study about the differences between investment adviser and broker-dealer oversight, and any existing regulatory gaps. The SEC is then authorized to create a standard-of-care rule that applies to anyone giving personalized retail investment advice.

Fiduciary duty supporters believe that the investor survey directly answers two questions concerning the SEC study: Do investors know that different standards of care exist, and does this difference lead to confusion about the advice that they receive?

“This study is probably going to be the seminal study to address those issues,” said Denise Voigt Crawford, Texas’ securities commissioner and president of the North American Securities Administration Association Inc., a sponsor of the survey.

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