Americans Agree: Fair Advice Requires Regulation

Nearly all American investors agree financial advisers should be required to proactively disclose conflicts of interest, actual or potential, to would-be clients. 

Findings from a recent survey commissioned by the Certified Financial Planner (CFP) Board of Standards show investors in the U.S. vastly favor rules and regulations that push advisers towards greater transparency.

Importantly, the research shows many Americans already feel comfortable trusting financial advice professionals, especially those with a CFP certification or other designations. Findings also point to a strong feeling that consumers and advisers themselves, rather than the federal government, bear most of the responsibility for avoiding harmful fallout from conflicted advice.

Even with a firm base of trust and personal accountability, however, U.S. investors still generally favor new rulemaking to strengthen requirements that advisers put client interests ahead of their own compensation when making specific product or service recommendations.

It’s a familiar conversation for retirement specialist advisers, given rulemaking efforts playing out at both the Department of Labor and the Securities and Exchange Commission. Respondents to the survey were not limited to defined contribution (DC) plan participants covered by the Employee Retirement Income Security Act (ERISA)—under which conflicts of interest are given special attention by regulators—but the findings still show a near universal concern about conflicted advice. This is leading, according to the CFP Board, to increased interest in the services of fiduciary investment advisers in essentially all investing market channels, not just those under the purview of ERISA.

Accordingly, consumers of professional finance advice have jumped from 28% of investors in 2010 to 40% in 2015, according to the CFP survey. Seven in 10 currently working with an adviser say their advice professional holds the CFP designation.

Most respondents feel financial advisers “have become more important in the last five years rather than less important,” at 41% versus 12%. Fully nine in 10 agree, with 76% “strongly agreeing,” that a paid adviser should always be required to put the consumers’ interest ahead of their own and “should have to tell consumers up front about any conflicts of interest that could potentially influence advice.”

NEXT: Trust is OK, but could be stronger 

The CFP Board says a majority of respondents believe that, under today’s regulatory regime, financial advisers still have sufficient leeway to act in their own companies' best interests, rather than in the consumers' best interests.  

“Although more people use financial advisers, a majority (63%) believe that current laws do not do enough to protect consumers from being taken advantage of in the financial markets,” researchers suggest. “Forty-four percent say that Congress and regulators have done ‘little’ of what needs to be done to protect consumers while 33% say ‘nothing has been done,’ and 70% agree that financial advisers should be regulated to protect investors and build consumer confidence in financial services.”

Respondents frequently said they believe financial services companies and customers themselves, not the government, ought to bear the most responsibility in the end for preventing malpractice. And underscoring the importance of politics and perception in the discussion, the CFP Board found that, when described in the context of the Dodd-Frank Act, a majority of consumers indicated they “don’t know if the act is helping to protect American savers.” It’s a striking reversal given Americans’ broad support for some of the very consumer protection provisions outlined under Dodd-Frank language.

The CFP Board notes its survey was “conducted over the summer before the uptick in stock market volatility in August,” but results still clearly show consumer views of the economy and personal finances have changed over the past five years. For example, while respondents are less optimistic now about the future of the U.S. economy, they still believe they are more financially prepared for the future than in 2010. 

“This research shows that Americans have more faith in financial advisers and want to work with someone who will put the consumers' interests first,” concludes Rich Rojeck, Chair of the CFP Board of Directors.

The full survey results are reported here.