Corporate Governance

IS THE FOG SURROUNDING INVESTMENT PROFESSIONALS LIFTING?

By Susan Weiswasser

Brokers, dealers, investment advisors. Do you have one or all? If all, is each service provided by a different firm or does one firm provide all services? A study just released in pre-publication form by the RAND Corporation, entitled Investor and Industry Perspectives on Investment Advisers and Broker-Dealers, reveals just how murky the waters are when it comes to discerning the line between the services and roles of different investment professionals.

The study?s object was to first ?examine investment advisers? and broker-dealers? practices in marketing and providing financial products and services to individual investors; and second, evaluate investors? understanding of the differences between investment advisers? and broker-dealers? financial products and services, duties, and obligations.? According to the report, investors and investment professionals alike ?do not have a clear understanding of the boundaries between investment advisers and broker-dealers. Even those who have employed financial professionals for years are often confused about job titles, types of firms with which they are associated, and the payments they make for their services. Respondents and participants also understand relatively little about the legal distinctions between investment advisers and broker-dealers. Despite this confusion, however, respondents report that they are largely satisfied with the services they currently receive from financial professionals.?

The SEC, which commissioned the report, had moved its release deadline up, after suffering a defeat in March 2007 when the D.C. Circuit struck down an SEC rule that excluded certain fee-for-service broker-dealers from the Investment Advisers Act. That Act requires, among other things, financial advisers to adhere to certain fiduciary requirements. The SEC?s rule thus allowed broker-dealers to give investment advice in certain circumstances without the same regulation as other advisers. The case had been brought by the Financial Planning Association (FPA) whose members, along with many consumer groups and other financial planners, had complained vehemently about the rule.  FPA?s chair hailed the court?s ruling as ?bring[ing] clarity to the financial services marketplace.?

According to Chairman Cox, the RAND report is anticipated to help the SEC in updating regulations to ?improve investor protections in today?s new marketplace.? You can read the full report here.

Full post as published by PomTalk on January 16, 2008 (boomark / email).