Dually registered firms were the most challenged when comesw it to clearing up conflicts. These firms “present the most complex choices for investors to understand, but these firms were least likely to provide helpful information on their conflicts of interest,” the analyst said.
Only 12% of dual registrants present their conflicts of interest in a way that empowers investors to understand and question the relationship, so 88% did not, according to Morningstar. In comparison, only 20% of independent broker-dealers and RIAs go beyond minimum language.
Few firms spelled out how they mitigate conflicts. “We once again found that RIAs and broker-dealers more frequently mentioned mitigation for conflicts, with 28% of RIAs and 20% of broker-dealers referencing their mitigation policies, while only 8% of dual registrants did so,” Mitchell said.
“We believe the SEC can and should use enforcement to compel firms to improve these disclosures. Additionally, we think the SEC should consider amending the instructions for the relationship summary to give less flexibility in the information firms provide investors,” Mitchell said.
Current instructions “imply a depth of information that firms have largely ignored, and the SEC could use enforcement to strengthen the standards,” she said.