Americans tend to have a tough time determining if their investment adviser relationship is subject to any potential conflicts of interest—or even if it is a fiduciary relationship—according to a new investor survey from Financial Engines.
In fact, according to the survey, while 77% of Americans want the government to act to bar all conflicted advice, “nearly half mistakenly believe their adviser is already obligated to act in their best interest at all times when providing retirement advice.”
A similar amount, 73% of respondents, said they felt it was “very important that all financial advisers be legally required to meet this standard.” Financial Engines says the numbers are pretty clear: Americans want a strong fiduciary standard and a government that tamps down on conflicted advice wherever it can.
The research is timely given the pending publication of the final form of the Department of Labor’s fiduciary rule, which many expect to take a very tough stance on potentially conflicted advice in the retirement plan domain. Beyond showing Americans’ general support for the DOL’s push, the Financial Engines survey also shows “just how confusing the financial services playing field can be for retirement investors.”
Digging into the numbers, almost half (46%) of Americans mistakenly believe that all financial advisers are already required to put their clients’ interests first when providing retirement investment advice. Among those currently working with financial advisers, a sizable number (41%) said that they were not sure if their adviser was a fiduciary or not.
NEXT: Backing the DOL
The statistics match some of the reasons DOL cites for pushing hard for a new, tougher fiduciary standard, which would go a long way towards requiring all advice given to retirees be fiduciary advice. Not surprisingly, industry providers have warned that the rulemaking, even if well-intentioned, will lead to unintended consequences and less advice overall. They argue the likely drying up of low-cost, non-fiduciary advice will do more harm to the typical American's pocketbook than eliminating rare, outlier cases of conflicted advice will do good.
Financial Engines suggests part of investors’ confusion “may be fueled by industry jargon.” Related to this, less than one in five (18%) of those polled said that they knew what it meant for a financial adviser to be a “fiduciary.”
For its part, Financial Engines seems to back the forthcoming fiduciary reform, suggesting that under current rules “advisers are legally permitted to steer retirement assets into investment funds that are not necessarily in their clients’ best interest but deliver commissions to the adviser.”
“We expect the new rule to curb that practice,” says Christopher Jones, chief investment officer at Financial Engines. “Our research shows that even if people may not fully understand the intricacies of who is a fiduciary and who is not, they have a clear preference for advisers who are legally required to put their clients’ best interests first.”
Additional findings from the survey, “In Whose Best Interest? What Americans know and what they want when it comes to retirement investment advice,” are reported on the firm’swebsite.