Investors not only don't know whether their financial advisors are fiduciaries, they're not even sure what a fiduciary is.
That's according to a white paper from consultancy firm Spectrem, which found that, despite indicating they understand the definition of fiduciary, when asked to define it, many didn't define it as an ethical or legal relationship.
In addition, the percentage of those saying they understood the term dropped as net worth decreased. So, while 89 percent of UHNW households (those with more than $5 million in net worth) and 75 percent of millionaires (those with $1 million–$5 million in net worth) said they understood the term fiduciary, just 57 percent of mass affluent respondents (households with $100,000 to $1 million in net worth) said they knew what it was.
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Among the UHNW, 83 percent said that a legal or ethical relationship is included in a fiduciary relationship, compared with 76 percent of millionaires and 73 percent of the mass affluent. And while half (UHNW, 51 percent; M, 55 percent; MA, 49 percent) also said that it includes a relationship based on confidence, good faith and trust, Spectrem said that its research indicates many investors feel advisors aren't always looking out for their best interests (UHNW, 42 percent; M, 43 percent; MA, 44 percent).
There's also misunderstanding on the topic of fees, again with a sliding scale of understanding of advisors' fee structures that depends on the client's income level. Among UHNW clients, 82.99 percent said they understood the fees they paid; 74.35 percent of M clients said so; and 66.45 percent of MA clients claimed to understand.
All three groups said that many advisors are biased in favor of certain groups or types of products, with 64 percent of UHNW saying so and 60 percent in both M and MA groups.
And, while the majority in the UHNW and M groups say they would prefer to pay fees rather than commissions (UHNW, 64 percent; M, 58 percent) for advice, more than half of the MA group favors commissions (54 percent).
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