Econintersect: A new study has examined the question of whether a higher level of fiduciary standard can price some registered representatives out of the market. Various states have differing levels of required responsibility for registered representatives of brokerage firms to look out for the best interests of their clients. The basis of the study was to survey the brokerage businesses to determine if there were differences in the number of registered representatives doing business within a state as a percentage of total households depending on how strict fiduciary standards were. The study, conducted by Michael Finke, of Texas Tech University and University of Missouri at Columbia, and Thomas Langdon, of Roger Williams University, found that there was no effect.
From the abstract of the Finke and Langdon report:
We find that the number of registered representatives doing business within a state as a percentage of total households does not vary significantly among states with stricter fiduciary standards. A sample of advisers in states that have either a strict fiduciary standard or no fiduciary standard are asked whether they are constrained in their ability to recommend products or serve lower-wealth clients. We find no statistical differences between the two groups in the percentage of lower-income and high-wealth clients, the ability to provide a broad range of products including those that provide commission compensation, the ability to provide tailored advice, and the cost of compliance.
This report contradicts the position taken by brokerage industry advocacy organizations such as The Financial Services Institute who have argued that requiring a fiduciary standard would impose higher costs on the services of registered reps and thus limit the access of middle- and lower-income Americans to financial advice.
- Fiduciary Standard Does Not Increase Costs, Study Says (John Sullivan, AdvisorOne, 4 April 2012)
- The Impact of the Broker-Dealer Fiduciary Standard on Financial Advice (Michael Finke and Thomas Langdon, Report, 9 March 2012)