Investors need more information about how they are protected when seeking fee-based financial advice, according to a survey of U.S. investors released recently by TD Ameritrade Institutional and conducted by Penn, Schoen & Berland Associates Inc.
The survey, a follow-up to the firm's 2004 survey, shows that 43 percent of investors responding were not aware that stockbrokers and investment advisors offering fee-based advice provide different levels of investor protection (compared with 41 percent in 2004).
TD Ameritrade was prompted to conduct the follow-up survey after SEC Rule 202(a)(11)-1, commonly known as the Broker/Dealer Exemption rule, was adopted in April 2005. The rule allows stockbrokers to offer services similar to a registered investment adviser without being held to the fiduciary standard of care and conflict of interest disclosure required of RIAs.
"It's no surprise that investors are confused when stockbrokers offer services through ads and sales materials that appear identical to those provided by RIAs," said Tom Bradley, president of TD Ameritrade Institutional. "Investors deserve to know there's an important difference between RIAs and stockbrokers. Only RIAs have a fiduciary obligation to act in their clients' best interest."
As part of the rule, brokerage firms offering fee-based advice are now required to include standard disclosure in brokerage account applications, advertisements, and sales materials that reveals, among other things, that an investor's account is a "brokerage and not an advisory account," and that the investor's and broker's "interests may not always be the same." After reading this required disclosure, the survey found that 66 percent of investors believe that the new disclosure does not sufficiently inform clients of their protections and 79 percent indicated they would be less likely to seek advice from a brokerage firm as a result.
According to Bradley, TD Ameritrade plans to launch a campaign that will help RIAs communicate the protection benefits they provide. Campaign details will be released during the summer.
Penn, Schoen, and Berland conducted 1,000 interviews representative of investors in the United States. Overall, the margin of sampling error is +/–3.09%. Interviews were conducted online between April 28 and May 1, 2006. More results of the survey can be found at www.amtd.com/governance/advocacy.cfm.