Despite Current Broker Disclosures, Investors Still Confused

Most investors still do not understand the difference between stockbrokers and financial planners.

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).