SEC-Commissioned Report Finds that Investors Have A Hard Time Telling the Difference Between the Roles of Broker-Dealers and Investment Advisers

Investors have a hard time understanding the differences between investment advisers and broker-dealers, as well as distinguishing between the different services and protections that each group offer. This finding was reported last month in an SEC-commissioned study conducted by Nonprofit policy group Rand Corp.

Rand gathered its findings from data that came from six investor focus groups and a survey it conducted of 654 U.S. households.

Included among the findings:

• Many investors do not know whether they are receiving the standard of care they are owed by their financial service providers.
• Many of these same investors are satisfied with the services provided to them by their financial service providers.
• Accessibility, attentiveness, and trustworthiness in a financial service provider ranked higher than performance or expertise.
• Some investors find it difficult to understand the disclosures provided to them by their investment adviser or broker-dealer.
• Investors don’t always finish reading disclosures.

The SEC ordered the study because it wanted to factually determine the state of the brokerage and investment advisory industries and assess the regulatory and legal environment surrounding investment professionals. It commissioned the study after a federal appeals court struck down an SEC rule that let broker-dealers offer fee-based brokerage accounts and a certain degree of advice without needing to be in compliance with the 1940 Investment Advisers Act. Critics had called the rule controversial, and the SEC wanted to see if this criticism had any merit.

The boundaries between investment advisers and broker dealers are not as delineated as they used to be. Investment Advisers Association Executive Director David Tittswroth says the study’s results confirm that many investors are confused.

The growing sophistication of the financial industry makes it harder for regulators to govern the different financial services. Shepherd Smith and Edward is a stockbroker fraud law firm that represents clients who have lost money because their investment accounts were inappropriately handled by a broker-dealer or an investment adviser. Contact Shepherd Smith and Edwards today to schedule a free consultation.

Related Web Resources:

Complexity of Financial Services Industry Makes It Difficult for Individual Investors to Distinguish Broker-Dealers and Investment Advisers,, January 3, 2008
Read the Full Report, (PDF)