Image credit: Beauty parlor, Tallahassee, Florida, 1962, State Library and Archives of Florida
By Jason Zweig | April 4, 2016 5:30 a.m. ET
My column this weekend points out that in an online survey of nearly 500 investors last month, 51% said — incorrectly — that brokers must always act as fiduciaries. Only 44% correctly said that about investment advisers.
The survey was co-directed by Patrick Lach, a finance professor at Eastern Illinois University and a registered investment adviser, along with marketing professor Leisa Flynn and finance professor G. Wayne Kelly of the University of Southern Mississippi.
Nearly a sixth of the survey participants work or used to work in the investment business — but, says Mr. Lach, it is “alarming” that they were wrong nearly as often as the general public about which financial professionals have a fiduciary duty. The difference between the general public and people with investment-industry experience in answering those questions correctly was tiny and statistically insignificant.
“The people who are already handling investments can’t even identify who is a fiduciary and who isn’t,” says Mr. Lach. “How the heck can we expect a schoolteacher or fireman or physician to do it?”
The professors write in their paper: “In most states, the minimum level of education needed to become a broker or an investment adviser is lower than the education requirement needed to become a hairdresser or an electrician. Electricians are required to complete several years of apprenticeship work under the supervision of a licensed electrician while brokers and investment advisers face no such requirement. Most states do not require a high school diploma or a Graduate Equivalency Degree (GED) to become a broker or an investment adviser. No minimum education requirement exists to qualify to sit for the Series 7 or Series 65 exams [regulatory qualifying tests to be eligible to sell securities]…many people who work one-on-one with clients do not attain education beyond this level.”
The investing public has no clue how under-educated many securities salespeople are, according to the study.
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According to the study, 71% of respondents believe that college education is a prerequisite for being a broker, and 85% believe an investment adviser is required to have at least some college education.
It is “disturbing,” says Mr. Lach, “that regulators seem to expect a high-school dropout who has passed an exam designed for entry-level professionals to have the education, training and experience to know when an investment decision is in the best interest of the client.”
The great journalist H.L. Mencken wrote decades ago, “The essence of a genuine professional man is that he cannot be bought.” And that, in turn, can spring only from a culture of exhaustive training and the highest standards of conduct. Professions like accounting, law and medicine took decades, often centuries, to advance to the point of requiring rigorous education and licensing for all their members. The field of investment advice remains a long way from being able to call itself a profession.
Source: WSJ.com