SOURCE: CLS Investments

FiComm Partners

December 07, 2015 06:00 ET

Joint Survey by CLS Investments and MarketCounsel Highlights Inconsistencies With the Term "Fiduciary"

OMAHA, NE--(Marketwired - December 07, 2015) -

  • 80% 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 the function
  • 83% of respondents who identify as fiduciaries completely or partly disagree with the statement "Fiduciary oversight is applied consistently throughout my organization"
  • Nearly 70% of all respondents said being a fiduciary is not determined by how you are compensated, or how the standard of care is disclosed; 75% of overall respondents say acting solely in a client's best interest defines a fiduciary
  • There is a limited understanding of just how dramatically the term affects advisor behavior and client relationships

CLS Investments, LLC ("CLS"), a third party money manager and a leading manager of exchange traded fund ("ETF") portfolios, recently joined with MarketCounsel, a leading business and regulatory compliance consulting firm to the country's preeminent entrepreneurial investment advisors, to survey over 200 independent financial advisors about the fiduciary standard of care. The objective of the survey was to gauge advisor perception with regard to the term "fiduciary" -- how advisors understand the term, whether they deem it worthwhile to use the term in describing themselves with clients, and whether it should be uniformly applied across the financial advisory industry's many channels.

Perhaps the most striking finding of the survey was the general lack of regard that advisors have for the current usage of the term "fiduciary." Generally, respondents said working solely in their clients' best interest is more important than promoting that they are held to the fiduciary standard -- nearly 70% said being a fiduciary is not determined by how you are compensated, or how the standard of care is disclosed. Supporting this conclusion, 75% of overall respondents say acting solely in a client's best interest defines a fiduciary. Further, 37% of respondents deemed the term "meaningless," due to a lack of understanding of its function, and 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, completely or partly disagree with the statement "Fiduciary oversight is applied consistently throughout my organization." Also, only 70% of fiduciaries market the fact and the overall preference (nearly 90%) is to communicate it verbally versus using the term in marketing materials (70% of respondents).

Given these findings, an undercurrent of the response set seemed to indicate that while most advisors are aware they are fiduciaries, there is a very limited understanding of just how dramatically the term affects their operations and relationships with clients. Thus, 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 CFPÒ," 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.

CLS-MarketCounsel Fiduciary Survey Facts and Findings

  • 202 financial advisor responses collected
  • 80% of respondents consider themselves to be a fiduciary
  • 83% of respondents who identify as fiduciaries completely or partly disagree with the statement "Fiduciary oversight is applied consistently throughout my organization"
  • Nearly 70% of all respondents said being a fiduciary is not determined by how they are compensated, or how the standard of care is disclosed
  • 70% of fiduciaries market the fact and the overall preference (nearly 90%) is to communicate it verbally versus using it in marketing materials (70% of fiduciary respondents)
  • 20% of respondents who consider themselves a fiduciary do not use the term to describe their services
  • 50% of all respondents and 80% who consider themselves fiduciaries, say the standard of care is not regulated well
  • Overall, the reasons that advisors feel it isn't regulated well include standards aren't clear (39%), enforcement is inconsistent (46%), and lack of understanding of the fiduciary function (37%) renders it meaningless

For media inquiries regarding this survey and to speak with a CLS or MarketCounsel spokesperson, or to request the raw data from the survey results, please contact: CLS@FiCommPartners.com.

About CLS Investments

CLS is an Omaha-based, family-owned and operated boutique registered investment advisor managing in excess of almost $6 billion. As one of the largest third party money managers and ETF strategists in the U.S., CLS partners with thousands of advisors, plan sponsors, and institutions to offer a full suite of outsourced portfolio management solutions for more than 35,000 individual investors. CLS specializes in creating portfolios based on a distinct risk budgeting methodology and active asset allocation approach. The CLS investment process is governed by systematic research across asset classes and strategies and the continuous measuring of risk. CLS claims compliance with the Global Investment Performance Standards (GIPS®). CLS Investments, LLC is a registered investment adviser. To obtain a copy of a fully compliant presentation and/or a list of composite descriptions, contact us at 888-455-4244. CLS is a member of NorthStar Financial Services Group (NorthStar), which currently has more than $332 billion* in assets under management and administration. To learn more, visit www.clsinvest.com.

*As of 9/30/2015

About MarketCounsel

MarketCounsel is the leading business and regulatory consultancy to the country's preeminent independent investment advisers at all stages throughout their lifecycle. From its roots in 2000, MarketCounsel has been steadfast in its mission to deliver solutions to the most substantial challenges faced by entrepreneurs in this fast-growing and highly-regulated industry, and it has emerged as one of its most effective advocates.

From the initial launch of a registered investment adviser to its compliance management platform, and from its business growth to its succession strategies, MarketCounsel consistently delivers trusted counsel within an extraordinary service model by leveraging the finest minds in the industry, advanced technologies and sound business processes. The consultancy's annual event, the MarketCounsel Summit, has become the premier gathering for the country's leading growth-oriented, independent investment advisers, and serves as both a spark and catalyst for conversation among the industry's leaders. Visit www.marketcounsel.com for more information.

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