Almost Two-Thirds of Clients Don’t Trust Advisors to Act in Their Best Interest: Poll

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The American Association of Individual Investors (AAII) released a poll on Tuesday of 1,904 respondents, asking the question, “How much do you trust the financial services industry to do what is in the best interest of its clients?”

Sixty-five percent of respondents said they “mistrust a lot” or “mistrust a little” when it comes to whether the financial services industry and specifically brokers and financial advisors will do what is in the best interest of its clients.

Only 15% said they “trust a little,” and only 2% of respondents said they trust the industry a lot.

“Perhaps not surprisingly, the vast majority–nearly 83%–feel that their interests are secondary to corporate profits and advisor/broker compensation,” the AAII wrote.

This poll is a damning indictment of the industry and shows the level of work still needed to regain investor trust.

Like many of you, I have paid close attention to the Labor Department’s fiduciary rule proposal, and I believe that whether or not you agree on the specifics of the proposal, you have to agree with the heart of the conflict it seeks to address.

Commissioned products like private REITs, private oil and gas deals and certain annuities that have made clients question their advisor’s judgement. Clients ask whether they’re being sold these products because it is the best way to diversify or because the advisor gets a big upfront commission, sometimes as high as 12%.

Why would an advisor sell a client a private commissionable REIT when there are cheap ETF REITs that are comparable? The answer is too often the upfront commission.

Ultimately, if we can’t make clients understand that we are, first and foremost, putting their fiduciary interests first, we will eventually lose all of our clients to robo advisors.

Here are the full results of the poll, which was submitted last week to the subscribers of its investor newsletter:

How much do you trust the financial services industry to do what is in the best interest of its clients?

Mistrust a lot : 37%

Mistrust a little : 28%

Neither trust or distrust : 19%

Trust a little : 15%

Trust a lot : 2%
Editor’s Note/Disclosure:

In addition to providing a weekly roundup of market commentary, we have asked Paul Dietrich, an investment manager and market commentator, to also contribute his own views on the nexus between the markets and the economy.

Paul Dietrich is the CEO and portfolio manager of Fairfax Global Markets LLC. Fairfax Global Markets manages a bond alternative investment strategy called the “Fairfax Global Permanent Portfolio.”  We also invest in stocks using a “value investment strategy.” For more information, contact Paul Dietrich at [email protected].

Fairfax Global Markets LLC is an investment advisor registered with the SEC.  For a detailed about its investment advisory activities visit www.adviserinfo.sec.gov.  The opinions and portfolio information provided are for illustrative purposes and are subject to change at any time and are not to be construed as advice for any individual or as an offer or solicitation of an offer for purchase or sale of any security.  Certain securities mentioned in this report may be held in client portfolios and by Paul Dietrich individually

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Comments (3)
  • You can get whatever response you like from polls. Ask people how much they trust their own advisor for a more accurate feel. Politicians try to get elected by bashing “Wall Street”, so when you ask a generic question how much you trust (the evil) financial firms to do “what’s best” of course there will be mistrust.

    How about a question on how much mistrust there is toward government. Leave the banks alone and break up big government.

    If people lack trust in their financial advisor (or any professional for that matter), they are free to move on.

  • There will be no trust until there is major structural reform in the financial sector. It’s becoming harder and harder for the financial disservices industry and insurance industry to hide their modus operandi. The WWW, social media and websites like AdvisorHub allow ordinary people to see and read what these industries are doing to their so-called clients.

  • Question is too broad. Brings back images of Countrywide, mortgages, etc. If it is specifically supposed to apply to the wealth management/brokerage end, they should ask how much people trust their own advisor to do what’s best for them.

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