“Investment advisors, when we speak to them, seem more willing to cloud their disclosures or their disclosure documents with conflicts of interest,” said Brian Hamburger, president and CEO of MarketCounsel and the Institute’s best practices board general counsel. “They seem less concerned that clients will raise issues with respect to conflicts.”
Ten years ago, about a quarter of MarketCounsel’s RIA clients had some type of registered rep or transaction-based relationship alongside their investment advisory fees. In the Institute’s study, more than one-third (35 percent) of RIAs have investment advisor representatives who are also registered reps of a broker/dealer. Thirty-nine percent report employees who are licensed to sell insurance.
“That bolsters the idea that there’s a greater acceptance of conflicts of interest.” Hamburger attributes the increase in conflicts to the 2008 crisis. Prior to 2008, it was easier for an advisor to forgo the revenue at a b/d to go independent, knowing that they would have higher growth rates as a fee-only advisor. “Post-2008, those growth rates are a little more difficult to come by,” he said.
But one can have a conflict without necessarily being in the wrong, Hamburger said. “This study really points to the fact that advisors are running very distinct and disparate practices among them,” he said. “Even when you look within these numbers, what you don’t see is the quality and the manner in which they’re actually handling these conflicts.”