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Should Financial Advisors Put Your Interest First?

An AARP Survey of Retail Investors about Advisor-Client Relationships and Fees

Distressed Couple Reviewing Finances

Most investors are not aware of the Security and Exchange Commission’s (SEC) 2019 ruling, Regulation Best Interest, according to a recent national survey. Despite its name, the new regulation does not require financial advisors to put their clients' best interest above their own. When investors learn more about the ruling, the survey found, a large majority oppose it.

Investors today are managing multiple retirement savings and other investment accounts across multiple financial institutions (e.g., 529 plans, health savings plans, and life insurance policies). These plans often involve complex financial decisions and risks, so many turn to financial advisors to help them decide which options are best for them.

Though most investors trust their financial advisors at least somewhat, most think their advisors are likely to sell them higher priced investments to maximize their earnings, conduct that they deem unacceptable. The SEC’s Regulation Best Interest ruling would seem to offer investors some protection, but it’s name is misleading. Most investors are not aware of the ruling, according to the survey.

Regulation Best Interest essentially reduced the standard of care that financial professionals (i.e., financial advisors and broker-dealers) are required to offer when providing investment advice to their clients. Although the new regulation states that broker-dealers must act in their client’s “best interest,” it falls short of defining exactly what that term means.

The regulation does explicitly state that “best interest” does not mean that financial advisors are required to provide a fiduciary standard of care. That is, despite its name, Regulation Best Interest does not require that financial advisors put their clients’ interest above their own financial interests. When investors who are largely unaware of the regulation, find out more about it, most oppose it, with half opposing it strongly. 

Methodology

To better understand investors’ awareness and views of the SEC’s Regulation Best Interest ruling and also their understanding of the fees and expenses they pay for investment products and financial advice, AARP conducted a national survey of 1,577 adults ages 25 and older who have money saved in retirement savings accounts and/or other investment accounts.

 

Suggested citation:

Williams, Alicia R. An AARP Survey of Retail Investors about Advisor-Client Relationships and Fees. Washington, DC: AARP Research, August 2020.  https://doi.org/10.26419/res.00342.001