Half of all respondents and 80 per cent of those who consider themselves fiduciaries say the standard of care is not regulated well, as the fiduciary debate rumbles on.

Until the role of a fiduciary is better understood by the public, the term holds little meaning or impact for clients and advisors alike, according to a survey of over 200 independent financial advisors.

Nearly 37 per cent of those polled by CLS Investments and MarketCounsel regard the term “fiduciary” as meaningless due to a general lack of understanding of the function, while 39 per cent feel that regulatory language, definitions and standards are not clearly defined.

The aim of the survey was to gauge advisor perceptions about 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 applied across the financial advisory industry’s many channels. Many of the survey findings therefore add fuel to one of the wealth management industry's biggest debates today: the fiduciary standard.

It ties in with the argument that many clients may consider the investment advice they receive from RIAs and broker-dealers as similar when there is an important legal difference that might not be fully understood by the investing public. At present, RIAs must adhere to a fiduciary standard under the Investment Advisors Act 1940 while brokers operate under a “suitability” rule. This means that while recommendations made by brokers must currently be suitable, they don't have to be in an investor's best interest.

The issue has bubbled up even higher in the past year or so as the White House and the US Department of Labor have attempted to highlight the problem and address it by requiring that anyone who advises an investor on their retirement assets do so under the requirement of the fiduciary standard, irrespective of the platform on which they operate. Micheal Zeuner of WE Family Offices recently offered his thoughts on the matter in a guest comment here.

According the survey carried out by CLS and MarketCounsel, many respondents believe that working solely in their clients’ best interest is more important than promoting that they are held to the fiduciary standard.

“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.”

The firms said that an “undercurrent” of the response set seems to indicate that although most advisors are aware they are fiduciaries, there is a limited understanding of how dramatically the term affects their operations and relationships with clients.

“Twenty years ago, when I met with an advisor who was a CFP, 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 therefore lend themselves to a broader discussion on the ongoing fiduciary debate. While a majority of respondents said the standards are too loosely defined and regulated, many wonder if they may see change through a proposal by the DoL to subject all financial advisors, including 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 de-emphasize 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 said.