In Practice April 27, 2007

Despite Current Broker Disclosures, Investors Still Confused

Most investors still do not understand the difference between stockbrokers and financial planners.
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Nearly all investors in a recent survey (92%) think that when stockbrokers and financial planners provide the same kind of investment advice services, they should be subject to the same investor protection rules.

In fact, 54% of investors said they would be much less (31%) or somewhat less (24%) likely to use a stockbroker providing investment advice if that individual is subject to weaker investor protection rules than a financial planner. More than half (60%) of those with a household income of $75,000 or more say they would be much less or somewhat less likely to do so, according to the survey sponsored by the Zero Alpha Group (ZAG), an international network of independent investment advisory firms, and the Consumer Federation of America (CFA), a non-profit association of approximately 300 organizations. The survey was conducted by the Opinion Research Corporation (ORC).

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“Primary” Callings

Many people look to stockbrokers for investment advice. Only 30% of investors correctly said that the “primary service” provided by stockbrokers is the buying and selling of stocks, mutual funds, bonds, and other investments. About the same amount (29%) said that financial advice is the “primary” service offered by stockbrokers, and a quarter (25%) said that advice and transaction assistance are equally important services provided by stockbrokers.

The majority of investors surveyed (86%) said they believe that stockbrokers should be required to disclose whether the stockbroker is receiving some form of inducement (incentives or compensation) to push a particular investment product to customers.

The survey comes on the heels of a recent appellate court decision striking down the SEC’s so-called broker/dealer rule, which permitted stockbrokers to offer extensive investment advice services without regulating them under the stricter standards of the Investment Advisers Act that apply to other advisers (See SEC “Merrill Lynch Rule’ Governing Advice Struck Down).

In Practice April 27, 2007

Adviser Sentiment is Positive for Year Ahead

Why do most not save enough for retirement?
Reported by

Asked why their clients don’t save enough for retirement, financial advisers most commonly cited procrastination, followed by debt, their extravagant lifestyle, children’s college education needs, and a lack of knowledge or concern, according to the Brinker Barometer, a gauge of financial adviser confidence and sentiment, by wealth management firm Brinker Capital.

 

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Economic Outlook

 

However, for those that are saving and investing, advisers were fairly optimistic about the economy and the markets, although economic sentiment was higher.

Seventy-two percent of advisers surveyed are either “highly confident” or “somewhat confident” about their economic outlook; however, financial advisers who work the insurance channel have a somewhat rosier outlook than their independent adviser peers, with 75% vs. 64%%, respectively, indicating high or some confidence. Insurance advisers were also a little more optimistic than independent advisers about their market outlook: 66% of insurance advisers said they were either “highly confident” or “somewhat confident” about market performance, compared to 59.5% of independent advisers.

Despite this positive outlook, advisers are concerned about geopolitical development and stock market volatility, which they listed as their two biggest worries in what issues have the potential to negatively impact client accounts. Recession ranked as the third major concern for insurance advisers, while independent advisers said oil prices, followed by recession, were their next greatest concerns.

 

Investment Vehicles

 

Advisers and clients are beginning to look away from individual stocks and bonds, the barometer showed, with those investment vehicles topping the list as “losing favor” by both insurance and independent advisers (34% and 28%, respectively).

However, while insurance advisers and independent advisers agreed on the three up-and-coming investment vehicles, they ordered and weighted them differently. Independent advisers are turning to alternative investments (52%), exchange-traded funds (47%), and stock mutual funds (45%), in order of preference, while insurance advisers voted for alternative investments (54%), stock mutual funds (50%), and exchange-traded funds (41%).

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