New survey findings have fueled debate over whether the fiduciary standard should be extended to brokers, and as the White House calls on the Department of Labor to propose new rules for advice to retirement investors.

The crux of the issue is that many clients may consider the investment advice they receive from RIAs and broker-dealers as similar when there is an important legal difference that might not be fully understood by the investing public.

At present, RIAs must adhere to a fiduciary standard under the Investment Advisors Act 1940 while brokers operate under a “suitability” rule. This means that while recommendations made by brokers must currently be suitable, they don't have to be in an investor's best interest.

While Dodd-Frank allowed the SEC to implement a uniform standard for advisors and broker-dealers, disagreements have delayed the process and the authority has yet to announce when, or indeed if, it will proceed.

Those who oppose the potential implementation of a uniform fiduciary standard argue that some brokers would either exit the industry, charge investors more for advice or simply stop working with “smaller” investors.

But findings from the 2015 fi360 Fiduciary Standard Survey suggest otherwise: 91 per cent of 609 participants said it doesn't cost more to work with a fiduciary advisor than a broker; 83 per cent said a fiduciary standard would not price investors out of the market for advice; and 78 per cent said it would not reduce investor access to products or services.  

Furthermore, 96 per cent of respondents believe that clearer differentiation between product providers and advice providers is necessary, with 72 per cent agreeing that the titles “advisor,” “consultant” and “planner” imply that a fiduciary relationship exists, which is not always the case.

The survey was open to all brokers, investment advisors and insurance consultants and producers.

Kathleen McBride, author of the report and founder of FiduciaryPath, noted that because the majority of respondents work in a fiduciary environment, the overall opinions garnered can be expected to reflect those of investment advisors.

“However, we examine responses by registration type and compensation model to better understand the opinions within each group,” she said.

Retirement focus

Respondents also indicated strong support for the Department of Labor to update decades-old Employee Retirement Income Security Act regulations, even though the fiduciary standard under ERISA is more rigorous than in the Investment Advisors Act. The proposal, which sparked heated discussions in the financial services sector and political world last month, is now with the Office of Management and Budget.

Almost three-quarters of the fi360 survey participants support the DoL's plan to propose a rule that would expand the number of intermediaries who are considered fiduciaries under ERISA and 82 per cent – up from 72 per cent in 2013 – said the same fiduciary standard that applies to 401(k) accounts should also apply to advice on IRA accounts.

“Advice is an inherently fiduciary function,” said fi360's chief executive, Blaine Aikin. “We are pleased to see that most practitioners feel the same. In the end, the conversation around fiduciary is about fairness and transparency in the marketplace.”

“Survey findings indicate many intermediaries who do not have to place their client’s interests before their own, want to do so. And it’s surprising how strong support is for the tougher ERISA fiduciary regulations and for the fiduciary standard for rollovers from 401(k)-type accounts to IRAs,” said McBride. “Advice on rollovers into IRAs is particularly important, because it is a vulnerable point for many retirement investors.”

At an event hosted by the AARP last month, President Obama said conflicts of interest in retirement advice results in annual losses of 1 percentage point for affected persons, on average.

“I know 1 per cent may not sound like a lot, but the whole concept of compounding interest - it adds up,” he said. “There are a lot of very fine financial advisors out there, but there are also financial advisors who receive backdoor payments or hidden fees for steering people into bad retirement investments that have high fees and low returns. So what happens is these payments, these inducements incentivize the broker to make recommendations that generate the best returns for them, but not necessarily the best returns for you.”

President Obama added: “I want to emphasize once again, there are a whole lot of financial advisors out there who do put their clients’ interests first.”

The National Association of Plan Advisors described the proposal, at the time, as an “attack” on many advisors.

Indeed, “people should be protected from unfair and deceptive practices,” said Brian Graff, executive director of NAPA. “But all indications are that this rule will block Americans from working with the financial advisors and investment providers they trust simply because they offer different financial products — like annuities and mutual funds — with different fees.”

Graff continued: “The best way to address concerns about 'hidden' fees is through better transparency, not by blocking 401(k) participants from working with the advisor of their choice. If the administration moves forward with this proposed rule, American savers will be forced to pay out-of-pocket for their financial advice, or be limited to financial products with identical fees.”