Fiduciary advice has never been more important to consumers’ ability to save and invest for the future.
As the continued, consistent growth of the fiduciary investment adviser industry demonstrates, investors recognize the value of fiduciary advice and continue to gravitate toward investment advisers to help them meet their financial objectives, including investing for retirement, homeownership, and education. The IAA supports policies that create incentives for consumers to seek fiduciary advice to help them navigate the complex financial markets and meet their financial goals.
Investment advisers have a special relationship of trust and confidence with their clients.
As fiduciaries, investment advisers have a duty of care, loyalty, and the utmost good faith to act in the best interests of their clients throughout their relationship and must put their clients’ interests first at all times. In addition to full and fair disclosure, advisers must ensure that their conflicts do not taint their advice in any way. These core values and legal obligations are at the heart of an investment adviser’s relationship with its clients.
Confusion in the marketplace for financial services persists.
Investors typically do not understand the legal and regulatory distinctions among various types of “financial advisors,” particularly the differences in services and duties of care between fiduciary investment advisers and broker-dealers. This makes consumer education an ongoing imperative. Key differences between investment advisers and other financial services providers include:
- Investment advisers are fiduciaries to their clients at all times throughout their entire relationship, and with respect to all agreed-upon advisory services.
- Investment advisers are not salespeople; they typically provide ongoing fiduciary advice over the long term, as opposed to transaction-by-transaction recommendations and commissioned product sales.
- Investment advisers’ business models and compensation structures (typically a percentage of a client’s portfolio value) align more closely with clients’ interests, while other providers’ financial structures are dependent on sales and commissions and therefore present more acute conflicts.
We urge the SEC to ensure that financial professionals or firms do not hold themselves out as fiduciaries or investment advisers unless they actually are. The Advisers Act requires that broker-dealers register as investment advisers unless their advice is “solely incidental” to their brokerage. A relaxed approach since the early 2000s to enforcement of this requirement has contributed to the blurring of the lines between investment advice and brokerage, which in turn continues to exacerbate consumer confusion. We are also concerned that the newly required customer/client relationship summaries (Form CRS) may increase rather than alleviate investor confusion in this area. We encourage the Commission to conduct further investor testing of the form to identify areas where clarification is needed.
The IAA stands ready to work with policymakers to ensure investors are educated and protected and their expectations match reality.