While the debate rages on in Washington about imposing a fiduciary standard on more advisors, a significant portion of advisors think the term is useless because the public does not understand what it means, a new survey says.
Thirty-seven percent of the 202 advisors surveyed say the term "fiduciary" is meaningless because there is a lack of understanding by the public on what the term means. The survey, released Monday, was conducted by CLS Investments LLC, a third-party money manager and manager of exchange-traded fund (ETF) portfolios based in Omaha, Neb., and MarketCounsel, a regulatory compliance consulting firm.
Eighty percent of the advisors polled identified themselves as fiduciaries, meaning they put clients’ interests first, but a majority of that group (83 percent) says a fiduciary standard is not applied consistently throughout their organization.
Another significant number of advisors (39 percent) feel the regulatory language, definitions and standards that are in place for those held to a fiduciary standard are not clear. The new fiduciary standard being considered by the Department of Labor for advisors who work with retirement plans has been criticized for being too complicated.
Speaking of the term in general, rather than the specific DOL proposal, Todd Clarke, CEO of CLS Investments, says, “While a clear definition around the term is needed to move forward, the core of the issue is larger than the industry’s lack of regulatory clarity around the term fiduciary -- the real issue is that the retail customer doesn’t understand what that term really means.
“Until we can help the lay investor understand what it really means to be served by a fiduciary and why they should work with one, I think we will continue to see these inconsistencies and feedback industry-wide. Without demand from the investor, we will maintain the status quo,” he adds. “The public doesn’t know what a fiduciary is, and therefore does not know why it does or does not make a difference to work with one.”
In fact, 20 percent of advisors who consider themselves fiduciaries do not use the term in promoting their business. Of those who do use the term as a marketing tool, 90 percent prefer to use it in discussions with clients rather than use it in marketing material.
“Advisors seem to be willing to de-emphasize that distinction, presumably after determining that the likelihood of further confusion to prospects and clients outweighs the benefits of the term,” says Brian Hamburger, president and CEO of MarketCounsel.