Fiduciary or salesperson? An analysis from the Consumer Federation of America and Americans for Financial Reform finds that 25 major brokerage firms and insurance companies say one thing to consumers and another to courts.

And firms could be missing the boat by not embracing a fiduciary standard, according to a Cerulli report, which said that as investors are increasingly willing to pay for advice, firms aren’t responding to those investors’ preferences.

The CFA/AFR report, written by Micah Hauptman and Barbara Roper of CFA, titled “Financial Advisor or Investment Salesperson: Brokers and Insurers Want to Have It Both Ways,” says that the websites for the brokerage firms and insurance companies have different practices for attracting customers compared with those they use “when resisting regulation as fiduciary advisors.”

The report specified that it used “the title, financial advisor, as it is commonly used in practice—to refer to sales reps of broker-dealers and insurance agents.” Financial advisors, it clarified, “are not to be confused with investment advisors, which is a legally defined term that refers to individuals who render advice about securities for a fee. Investment advisors are held to a fiduciary standard under state and federal securities laws.”

According to the report, “transaction-based financial professionals typically employed by broker-dealers and insurance companies … present themselves as ‘trusted advisors’ whose only concern is their clients’ best interest” when they are “marketing their services to the investing public….”

But when there’s an issue of being held “legally accountable” for meeting the standard of a fiduciary, the report said, it’s a different story.

It cited a study from the Public Investors Arbitration Bar Association (PIABA) that, it said, “contrasted the way major brokerage firms describe themselves in advertising campaigns with the arguments they mount when defending against customer claims in arbitration.”

Based on its analysis, PIABA said, “a fiduciary standard should be adopted to protect investors from the harmful impact of conflicted advice.”

Building on the PIABA study, CFA and AFR conducted a detailed review of company websites for 25 brokerage and insurance firms challenging the Department of Labor’s fiduciary rule in court, and found that “these firms have adopted all the hallmarks of fiduciary advisors,” although when it came to their legal filings against the DOL rule, they “claimed that broker-dealer reps are just ‘salespeople.’”

In a statement, Micah Hauptman, financial services counsel, CFA, said: “Financial professionals who act like retirement investment advisors should be held to an advice-based standard, and that’s what the DOL rule does. Firms are sorely mistaken if they think they can continue the current charade in which they act like advisors to their customers while relying on their trade associations to argue the opposite in court in order to try to kill the DOL rule … People saving for retirement deserve to know where their advisor and the firm that their advisor works for stands on this issue.”

Cerulli’s report pointed out that even as younger people under age 40 make up the largest group that is increasingly willing to pay for investment advice, “the relatively meager savings of most investors in this cohort and a financial advice delivery system built primarily around investors’ asset levels leaves many in the segment underserved.”

Instead of simply looking to provide advice to investors with more investable assets, the Cerulli report said that “a more compelling way to address households under age 40 is offering scalable on-demand advice from real advisors who are able to help investors understand the impact and consequences of the decisions they make from a comprehensive financial planning standpoint.”

While it would not be easy to do so, since it would require “[d]eveloping a comprehensive planning model … that incorporates a variety of product placement opportunities, while still governed by a fiduciary standard” that would “require a high degree of legal finesse and disciplined oversight,” Cerulli said that “combining … broad product lines within a fiduciary framework” provides an opportunity for profitable long-term client relationships.

Read all our fiduciary rule coverage at the DOL Fiduciary Rule page

Instant Insights /

Brokerage, insurance firms misleading consumers on fiduciary status: analysis

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