Aite Group: Financial Advisors' Expectations From Fiduciary Standard For Retail Brokers

A new report from Aite Group, LLC discusses financial advisors expectations regarding the introduction of a fiduciary standard for retail brokers, the potential obstacles to this measure, and its potential impact on the brokerage business model if implemented. The paper

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A new report from Aite Group, LLC discusses financial advisors expectations regarding the introduction of a fiduciary standard for retail brokers, the potential obstacles to this measure, and its potential impact on the brokerage business model if implemented. The paper is based on an Aite Group survey of 402 financial advisors, conducted online in Q4 2009.

Given the economic crisis and recent cases of misconduct by brokers (e.g., auction-rate securities, the Madoff scandal), the Obama administration has made it clear that representatives of the retail brokerage industry should be subject to a fiduciary standard. While the administration has given the task of working out the details to the SEC, the details of the new standard and its implications are far from being clear. A majority of survey respondents give the initiative a less than 50% chance of being put into place. Financial advisors expect the economic recovery and lobbying efforts by the brokerage industry to be the biggest obstacles for the implementation of this regulatory initiative.

“While independent RIAs have long cited the fiduciary standards of their industry as a major differentiator, its implementation for retail brokers could remove it as such,” says Alois Pirker, research director with Aite Group and author of this report. “Brokers believe that a fiduciary standard would lead to an advice model very similar to the one utilized by independent RIAs. RIAs, on the other hand, believe that brokers would have a hard time adjusting to the requirements of a fiduciary standard, and that they themselves will not lose their competitive fiduciary advantage as a result of this measure.”

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