Consumers who don’t want to pay upfront fees for investment advisory services (which is most of them according to recent surveys) may soon be out of luck. The Investment News reports that an expected SEC rule that would impose a universal fiduciary duty on all advisors is the driving force behind a trend that has advisors shifting their businesses from commission-based to fee-based accounts.
Unfortunately, the trend flies in the face of consumer preferences. Nearly half of the 7,800 households surveyed recently by Cerulli Associates said they preferred paying commissions for financial advice, compared with just 27 percent who said they would rather pay a fee based on assets. A 2010 LIMRA survey commissioned by NAIFA that asked consumers what they would do if their advisor charged $2,500 upfront for planning revealed a similar theme: 71 percent said they would seek another advisor or go without professional services all together.
Meanwhile, a survey by J.D. Power found that clients typically don’t care whether their advisor is under a fiduciary standard.They are much more concerned about customer service issues, including whether their advisor will communicate openly with them about their finances and investment options and whether the advisor will respond to their questions promptly.
An SEC fiduciary rule could very well end up harming the people it is designed to protect by increasing the costs of financial products and services and limiting investors' choices when it comes to obtaining and paying for financial products and advice. In short, it offers them something they don't want at a price they cannot afford. And it seems highly unlikely that this was a goal of the Dodd-Frank law.