More than half would take action if they discovered that their financial advisor was not a fiduciary
Compared to a similar survey last year, Americans have a slightly better understanding of the difference between a financial advisor who is a ‘fiduciary’ and one who is not (21 percent understand the difference today, compared to 18 percent a year ago). However, many Americans still don’t know how to tell if an advisor is a fiduciary. Only 50 percent of investors who work with a financial advisor are certain that their advisor is a fiduciary, while 38 percent don’t know if their advisor is a fiduciary or not.
“The bar is rising. Once people understand the benefits of working with a fiduciary, they want one on their side,” said
Investors Threaten Action
According to the survey, if investors discovered their financial advisor was not a fiduciary, many would take action. Respondents said that they would ask more questions about their advisor’s investment recommendations (47 percent), switch to another advisor (23 percent) or stop working with a financial advisor altogether (18 percent). Only 12 percent would continue working with the same advisor in the same capacity. Sixty percent are receptive to having outside help to determine which financial advisors would put their best interest first.
“Many financial firms and advisors parse their words carefully to give the appearance of being a fiduciary, even when they are not,” said Jones. “While the debate over the conflict of interest rule has raised consumer awareness about this important standard, investors must still be careful to demand advisors that act in the sole best interests of their clients.”
Knowing What to Ask
Despite the complexity and lack of clarity on the fiduciary rule,
- Are you a fiduciary? A direct question deserves a direct answer. Pay attention to how the advisor responds. If your advisor has told you that he or she is acting as a fiduciary, ask them to show that to you in writing.
- Do you receive any type of compensation in addition to what I’m paying you? Some advisors receive commissions or other product-based compensation when they steer clients into particular investment products (including mutual funds, annuities, and variable annuities). This is a clear conflict of interest and can indicate that the advisor is not, in fact, a fiduciary. Make sure your advisor is providing unbiased advice, and not simply selling you investment products.
- Are you “dual-registered”? Some advisors are registered as both investment advisors and broker-dealers. Generally, a broker-dealer is acting in the role of salesperson. If your advisor is also a broker-dealer, make sure you understand which hat they are wearing when providing advice to you.
- Have you ever been cited by a professional or regulatory body for disciplinary reasons? To be extra sure, you can look up the advisor’s records on FINRA’s BrokerCheck to find out if they have any complaints—especially complaints related to providing financial and advisory services.
“The bottom line is that investors need to be careful in selecting an advisor,” said Jones. “Make sure the advisor is required to act in your best interests as a fiduciary before you trust them with your hard-earned money.”
Additional highlights from the survey include:
- More than half of consumers (53 percent) feel that investment advisors should be regulated by the federal government.
- Only 15 percent of Americans surveyed think that employers should be allowed to offer services from advisors who are not fiduciaries.
- When asked who they believe stands to benefit from the fiduciary rule the most, the highest percentage (28 percent) say average-income investors.
Results of the survey can be found at https://financialengines.com/workplace/resources.
For more information, please visit www.financialengines.com.
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1 For independence methodology and ranking, see InvestmentNews Center (http://data.investmentnews.com/ria/).