Just how important is it to consumers that their financial advisors operate under a fiduciary standard of care?
As it turns out, not very.
A recent J.D. Power and Associates survey of investors found that 85 percent of full-service investors either have not heard of or do not understand the difference between suitability and fiduciary standards. While 57 percent of investors whose advisors have a fiduciary duty said the standard makes them more comfortable, a full 42 percent said it makes them less comfortable.
The Securities and Exchange Commission is currently determining whether to impose a universal fiduciary duty on all advisors, and what that standard might look like, in a move that could have consequences for middle-income advisors.
“While higher levels of satisfaction are generally associated with clients in fiduciary relationships, legislating all advisors to this standard carries an unintended consequence of additional compliance oversight, which could translate into significantly higher costs – likely to be ultimately passed back to consumers,” said J.D. Power Director of Investment Services David Lo.
Lo said that clients are more concerned about having advisors who are good communicators. They want to work with someone who can clearly communicate reasons for investment performance, explain how fees are charged, provide them information on new products and services, and review their strategic plans regularly.
Also important, investors want an advisor who will take their calls and answer their inquiries quickly.
“Proactive outreach from advisors goes a long way in developing the client-advisor relationship, and expectations as far as frequency of contact have increased coming out of the recession,” Lo Said. “Advisors can meet this increased need by utilizing more non-traditional forms of communication, such as email and the firm’s website, which is much more widely accepted by full-service investors of all ages.”