While recent legislation has sparked debate about suitability versus fiduciary standards, a majority of investors do not understand the difference between the two, a survey by J.D. Power and Associates found.
Eighty-five percent of investors have either not heard of or do not understand the difference between a suitability standard, whereby an adviser is supposed to recommend investments they deem suitable, and a fiduciary standard, whereby an adviser is required to act in the best interests of their client.
“While higher levels of satisfaction are generally associated with clients in fiduciary relationships, legislating all advisers to this standard carries an unintended consequence of additional compliance oversight, which could translate into significantly higher costs—likely to ultimately be passed back to investors,” said David Lo, director of investment services at J.D. Power. “Placing more focus on key best practices in client management empowers advisers with more actionable direction and achieves satisfaction levels on par with satisfaction among investors in a fiduciary relationship—844 versus 841, respectively.”
Lo said that best practices of client services, in order of importance, include: clearly communicating reasons for investment performance, clearly explaining how fees are charged, proactive client contact regarding new products or services at least four times in a year, returning client calls within the same business day, reviewing or developing a strategic plan within the past 12 months, providing a written financial plan, and, finally, discussing rick tolerance changes and incorporating them into the pan where appropriate in the past 12 months.
The J.D. Power and Associates 2011 U.S. and Full Service Investor Satisfaction Study also found that RBC Wealth Management ranks highest in investor satisfaction, with a score of 814 on a 1,000 point scale. Charles Schwab, with a score of 805, ranks second, and Fidelity Investments, with a score of 796, ranks third.