In pressure cooker of Washington, D.C., nothing looks certain, especially after Tea Party wins

September 16, 2010 — 2:21 AM UTC by Elizabeth MacBride


Elizabeth’s note: When Brooke and I talked about this story a day or two ago, he said, in essence, So What? It’s not going to be news that investors don’t understand the fiduciary standard or that brokers and insurance agents don’t legally have to act in their clients’ best interests. He was right, of course. But as is so often true in Washington, D.C., the importance of the survey is less what’s in it than why it exists. The advocacy groups that commissioned the study are seeking to pressure the SEC into extending the fiduciary standard to brokers and agents. Their pressure point is the fact that Congress instructed the SEC to solicit public opinion. So, the groups are handing the SEC a neatly wrapped-up, quite size-able survey that would be difficult for the SEC to ignore when it prepares its study for Congress.

The majority of investors have no clue that broker-dealers and insurance agents are not required to act in their clients’ best interests, according to a survey released yesterday by a coalition of consumer, advisor and regulatory groups.

Three of every five American investors believe insurance agents have a fiduciary duty to clients, and two of every three believe that stockbrokers do, according to the survey of 1,319 investors nationwide.

The advocates sent the survey findings via e-mail to the SEC, which is studying the question of whether the fiduciary standard that advisors currently operate under should be extended to broker-dealers and insurance agents.

There were few surprises in the survey, which reconfirms earlier findings. But the survey says plenty between the lines about the tense political scene in Washington D.C., in which fiduciary advocates are up against stiff opposition from broker-dealers and insurance agents, who are also seeking to influence the SEC as it works on the study due on Jan. 17.

Terrifically angry

The pressure is only growing along with tumult of this fall’s political scene. Tea Party candidates in yesterday’s primaries made strong showings. Most pundits read that as a sign the voters are terrifically angry at incumbents and establishment politicians.

Many observers expect the Democrats to lose the House to Republicans.

“The magic number is 39,” said Greg Valliere, chief political strategist of the Potomac Research Group. “Buy me a drink later on and I might say (the loss of Democrat-held seats) will be well in to the 50s.”

He spoke yesterday morning at a breakfast gathering focused on the changing political scene sponsored by Glassman Wealth Services.

If the House falls into Republican hands, some of last year’s landmark legislation could be rolled back – even the provisions authorizing the SEC to extend the fiduciary standard to broker-dealers, acknowledged David Tittsworth, the executive director of the Investment Adviser Association and a close observer of the political winds.

Rollback of fiduciary provision?

He said, however, that he doesn’t think a rollback of the fiduciary standard provision is likely.

“There are different opinions on that,” he said. It’s unlikely a Republican House (or Congress) would rollback a provision that was negotiated with both parties, he adds.

“There’s nothing inherently political about the issue,” said Barbara Roper, director of investor protection, Consumer Federation of America. She pointed to the big numbers in the survey as evidence that on investors’ part, the fiduciary issue is bipartisan.

The organizations involved in promoting the survey were

The survey was conducted by ORC/Infogroup.

Among the findings of the survey:

  • 97% of investors agreed that “when you receive investment advice from a financial professional, the person providing the advice should put your interests ahead of theirs and should have to tell you upfront about any fees or commissions they earn and any conflicts of interest that potentially could influence that advice.”
  • 96% agree that the fiduciary requirement should extend to insurance agents selling investments. There was strong support for the following: “when you receive investment advice from an insurance agent — including an agent selling annuities — the insurance agent should have to put your interests ahead of theirs when making those financial recommendations and also tell you upfront about any fees or commissions they earn and any conflicts of interest that could potentially influence their advice.”
  • 91% think that “a stockbroker and an investment adviser (who) provide the same kind of investment advisory services … should have to follow the same investor protection rules.” Supporters of this even-handed approach to regulation include 92 percent of households over $100,000 or more and 90 percent of college graduates.

Thought the survey essentially repeated what other earlier surveys have found, Roper said that some things have changed. First of all, because insurance agents have been vocal opponents of the extending fiduciary standard, especially over sales of variable annuities, the survey specifically asked that question.

The context has also changed, in that the Dodd-Frank bill specifically directed the SEC to get public input on the issue.

“We took the time to update the record on the issue,” she said.

AARP factor

Finally, the fact that one of the co-sponsors of the survey is the AARP is a sign of the solidifying coalition on this issue between that powerhouse lobbying group for the elderly and the fiduciary advocates.

Mentioned in this article:

Certified Financial Planner Board of Standards
Top Executive: Kevin Keller

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