Well over a third of advisors responding to a new survey deemed 401(k) fiduciary meaningless—the term, that is.
In what we readily admit is a bit of click bait, a joint survey by CLS Investments and compliance powerhouse MarketCounsel found 80 percent of advisors surveyed considered themselves to be a fiduciary. However, nearly 37% of overall respondents deemed the term “meaningless” given a lack of understanding of its function.
Nearly 75 percent of respondents say acting solely in a client’s best interest defines a fiduciary. Further, 39% felt that regulatory language, definitions, and standards are not clearly defined.
“While a clear definition around the term is needed to move forward, the core of the issue is larger than the industry’s lack of regulatory clarity around the term fiduciary – the real issue is that the retail customer doesn’t understand what that term really means,” said Todd Clarke, CEO of CLS Investments. “Until we can help the lay investor understand what it really means to be served by a fiduciary and why they should work with one, I think we will continue to see these inconsistencies and feedback industry-wide. Without demand from the investor, we will maintain the status quo.”
Other findings also point to inconsistency around being and identifying as a fiduciary. About 83% of respondents who identify as fiduciaries, either completely or partly disagree with the statement, “Fiduciary oversight is applied consistently throughout my organization.”
Given these findings, independent advisors feel that until the role of a fiduciary is better understood by the public, the term holds little meaning or impact for clients and advisors alike.
“Twenty years ago, when I met with an advisor who was a Certified Financial Planner, that meant nothing to the public. Today, that designation is valuable in the public’s eye because clients have become more knowledgeable about what it means to be a CFP,” added Clarke. “The public doesn’t know what a fiduciary is, and therefore does not know why it does or does not make a difference to work with one.”
The survey results naturally lend themselves to a broader discussion on fiduciary regulation. While a majority of respondents stated that the standards are too loosely defined and regulated, many advisors are wondering if they might see change through a proposal by the Department of Labor (DOL) to subject all financial advisors as well as brokers, to the fiduciary standard.
“Investment advisors seem aligned with clients in their confusion over the term fiduciary. This is nothing new. But what is interesting here is that advisors seem to be willing to deemphasize that distinction, presumably after determining that the likelihood of further confusion to prospects and clients outweighs the benefits of the term,” said Brian Hamburger, president and CEO of MarketCounsel.
“The SEC has commissioned studies dating several years back that confirmed this confusion and, so far, has done little to address this issue. That laissez faire approach has been detrimental to both investors and financial professionals, specifically investment advisors,” Hamburger concluded.