Debunking Time: Fiduciary Duty Would be Good for (a Broker's) Business

In its Study, Aite surveyed 498 advisors, who fell into one of three groups: RIAs, dually registered reps (called fiduciary RRs), and FINRA-only registered reps (RRs). When asking these advisors about their business over the past five years, here's what they found: 

• 55% of the RIAs had more than a 10% increase in client assets per year, compared to 46% of fiduciary RRs, and only 29% of RRs.

• While 38% of RIAs saw annual increases in revenue of more than a 10%, 50% Fiduciary RRs had increases of 10% or more, compared with only 31% of RRs.

• And 65% of RIAs increased their client "wallet share" more than 5% a year, with Fiduciary RRs at 64%, and RRs at 46%.

What about the costs of being fiduciaries? During this time, RIAs and Fiduciaries spent 5% of their time on compliance, while RRs spend 8%. And the concern that a fiduciary standard will force brokers to drop their less affluent clients? Aite found that the client bases of both the fiduciary and non-fiduciary RRs surveyed ranged between 5% and 10% mass-market clients, concluding: "This indicates that the lack of in-person advisory services available to mass-market clients is an industry-wide problem that is not likely to be exacerbated by the adoption of a fiduciary model." 

What's more, Aite reported that "There is already good adoption of the fiduciary practice of asking clients for their informed consent of conflicts of interest among registered representatives:" 57% of dually-registered RRs and 44% of FINRA RRs are already asking their clients for informed consent after disclosing conflicts. In fact, 56% of the registered reps surveyed agreed that "A fiduciary standard of care is appropriate for all financial services providers who deliver personalized investment advice to retail investors." 

Here's how the Coalition Letter summed it up: "The Aité Group study supports the conclusion that a uniform fiduciary standard will benefit retail customers and their financial advisers, and will not impose significant costs. Advisers at broker-dealers and at investment advisers who deliver services to their customers under a fiduciary standard find that they experience stronger asset growth, stronger revenue growth, and obtain a greater share of client assets than those that provide services primarily under a non-fiduciary model. Financial advisers who deliver services under a fiduciary standard also do not spend any more of their time on compliance or other back-office tasks. 

So much for the-fiduciary-duty-will-cost-too-much argument. Still, this raises the question: If Fiduciary RRs have so much better businesses than non-fiduciary RRs, why are SIFMA and NAIFA so adamantly opposed to a uniform fiduciary duty for all RRs? For that answer, I suspect we'd need to do a study of brokerage firm profitability on non-fiduciary RRs.