Unlocking Real Value Blog

Advisors and the Fiduciary Standard (and Other Things on Their Minds)

A survey of financial advisors in Today’ FundFire, entitled Falling Comp, Poor, Management Rattle Advisors, yielded some interesting results. The headline and initial focus of the article is concern over reduced compensation and the feeling by advisors that their companies were being poorly managed. Given that the majority of the respondents were from wirehouses, neither concern is surprising.

It’s also not surprising that wirehouse advisors felt that management was too concerned with the bottom line at the expense of investing in the future growth of the business. I have blogged previously my thoughts on how cuts in sales assistants, for example, were short-sighted.

But what I found to be the most interesting part of the survey was near the bottom of the article. Only 10% of the respondents, when asked what the greatest challenge facing the industry was, answered the fiduciary standard and other regulatory reform. This is both surprising and not surprising.

This low percentage is surprising given the large amount of attention regulatory reform has been getting in the press. Perhaps many of the respondents were 1) focusing on the fact that the currently proposed regulation is not too negative for broker/dealers overall; and 2) that the fiduciary standard is not currently part of the regulation unless a six month study by the SEC results in some further action (perhaps this also reflects the fact that not many people have confidence that the SEC will actually do anything!).

Why the results were not surprising to me is that many Advisors at wirehouses feel that even though they are not currently held to the fiduciary standard, they themselves do act like fiduciaries, and therefore even if the standard becomes law, it will not significantly affect them or their personal business. My guess is that they also feel that the broker/dealers themselves will have to make the majority of the adjustments. This view is naive, however, because if the standard were mandated, it would affect the products most advisors would be able to sell (as revenue-sharing would disappear), and it would greatly affect how broker/dealers are run in general. There would most definitely be a trickle down effect onto individual advisors.

Perhaps management of the wirehouses should spend some time over the next six months (assuming the legislation is passed) educating their advisors on the issue so that they can become advocates for their companies and their position on the issue. The odds still favor no fiduciary standard for broker/dealers in the foreseeable future; but why take the chance?

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