SEC's RAND Report Outlines Investor Confusion About Broker/Investment Advisor Fiduciary Standards

Commissioned by the SEC, the RAND Corporation recently interviewed over 650 investors, two-thirds of whom were experienced in the financial markets. The study found that investors are unclear about the fiduciary standards between brokers and investment advisors. Part of the problem is the plethora of titles in both types of firms, including financial consultant, investment consultant, investment advisor, pension consultant, etc.  If an "advisor" or "consultant" has a securities license, they can be paid commissions by the product or service that they are recommending. These licensed individuals are required only to follow the standard of investment suitability. However, a registered investment advisor, sometimes also called a "consultant" or "advisor," has the additional duty of loyalty to their client. In other words, registered investment advisors should have no conflict of interests in serving their clients. Brokerage commissions are certainly a significant conflict of interest.  Serving two masters corrupts advice! 

Please see the following press release and links for additional details.

SEC Publishes Text of RAND Report on Investment Adviser, Broker-Dealer Industries

Study Explored Industry, Investor Perspectives on Customer Relationships with Financial Service Providers

Washington, D.C., Jan. 3, 2008 - The Securities and Exchange Commission has received and posted on its Web site the text of the RAND Corporation's final report on practices in the investment adviser and broker-dealer industries.

"The Commission has been anxious to receive Rand's study of the investment adviser and broker-dealer industries, and the nature of their relationships with customers. The report will assist the Commission's efforts to update our regulations to improve investor protections in today's new marketplace," said SEC Chairman Christopher Cox. "Our staff is now studying the report and the potential regulatory implications of its findings."

RAND produced the report under contract with the Securities and Exchange Commission ( The report is the product of more than a year of empirical study and analysis.

Following a March 2007 Court of Appeals decision that overturned a 2005 SEC rule permitting non-adviser broker-dealers to charge fees to investors based on account size, the SEC and RAND agreed that RAND would deliver its final, peer-reviewed report in pre-publication format on Dec. 31, 2007, three months earlier than the contract had originally required. The text of the posted report is final and has been peer-reviewed. Neither the data nor the analysis on which it is based will change. The fully formatted, publication version of RAND's final report is due by March 25, 2008.