Investor Survey Reveals Great Concern Over Unequal Protections Around
Fee-Based Financial Advice; Investors Believe Legislation That Creates Uniform
Protection Would Boost U.S. Investor Confidence
Firm Recommends Three Key Questions All Investors Should Ask Before Accepting
Fee-Based Financial Advice
NEW YORK, Nov. 22 /PRNewswire/ -- TD Waterhouse USA today announced its
stand on "The Merrill Lynch Rule" and called for the debate over the
regulation of fee-based advisory services to be resolved in favor of investor
protection. TD Waterhouse is the first brokerage firm to take a public stand
against the adoption of "The Merrill Lynch Rule," a rule proposal put forth by
the SEC in 1999 that exempts stockbrokers offering fee-based financial advice
from providing the investor protections of the Investment Adviser Act of 1940.
TD Waterhouse also released the results of an investor survey, which found
that investors had a high level of concern about unequal investor protections
associated with fee-based financial advice. Eighty-one percent of survey
respondents were either very concerned or somewhat concerned that both
stockbrokers and investment advisors provide fee-based financial advice yet
offer unequal levels of investor protection. Based on the survey findings, TD
Waterhouse developed three key questions all investors should ask before
accepting fee-based financial advice.
"As a leading discount broker serving over two million U.S. investors,
we've been monitoring this issue carefully and recognized early on that no
other brokerage firm was advocating the best interests of individual
investors," said Tim Pinnington, President and Chief Executive Officer of TD
Waterhouse USA. "We recommend a common industry standard that provides
investors uniform protection around fee-based financial advice. We
established this position in a Comment Letter to the SEC and believe it
addresses the investor concerns identified in our survey."
The survey, conducted by research firm Penn, Schoen & Berland Associates,
revealed that investors are either unaware of, or confused about the unequal
protections offered by those who provide fee-based financial advice. Fifty
eight percent incorrectly believe that both stockbrokers and investment
advisors have a fiduciary responsibility to act in the investor's best
interest in all aspects of the financial relationship, and 63% incorrectly
believe that both stockbrokers and investment advisors are required to
disclose all conflicts of interest prior to providing financial advice.
Nonetheless, nearly 85% of investors expect all financial professionals
offering fee-based financial advice to provide these protections.
Consequently, investors expressed a high level of concern regarding the
unequal protections provided by existing regulation. Eighty three percent
were either very concerned or somewhat concerned that all financial
professionals offering fee-based financial advice are not subject to the same
industry regulation.
Lastly, 86% of investors indicated that their choice of financial
professional would be impacted if they understood the different levels of
investor protection from stockbrokers and investment advisors offering the
same fee-based advisory services.
When asked about a solution to the unequal regulation, 90% of those
surveyed expressed support for Congress to enact legislation that creates a
clear, uniform standard of investor protection for all stockbrokers and
investment advisors who provide investors fee-based financial advice. And 88%
believe that this legislation would boost investor confidence.
"To help investors understand the current protections provided by their
financial professional, we have developed three key questions that investors
can use right now to make informed decisions around fee-based financial
advice," said Mr. Pinnington.
In addition to the customary questions investors should ask of their
financial professional, TD Waterhouse recommends the following when
considering fee-based advice:
Three Questions that All Investors Should Ask Before Accepting Fee-based
Advice
* Do you provide fee-based financial advice as a Registered Investment
Advisor or under the broker exemption known as "The Merrill Lynch
Rule"?
* When providing fee-based financial advice, what are your obligations to
act in my best interests?
* What are your disclosure requirements when providing fee-based
financial advice?
TD Waterhouse USA commissioned research firm Penn, Schoen & Berland
Associates, Inc. to conduct interviews with 1,000 American investors who own
stocks, bonds, or mutual funds outside of a company-sponsored plan. The
survey has a margin of error of + or - 3%. Interviews were conducted online
from October 18 - 22, 2004.
About TD Waterhouse
TD Waterhouse Group, Inc. provides investors and financial advisors with a
broad range of brokerage, mutual fund, banking and other consumer financial
products. Worldwide, TD Waterhouse currently services 3.1 million active
customer accounts. TD Waterhouse is a wholly owned subsidiary of The
Toronto-Dominion Bank (NYSE, TSE: TD) and part of TD Bank Financial Group.
Headquartered in Toronto, Canada, with offices around the world, TD Bank
Financial Group offers a full range of financial products and services to
approximately 13 million customers worldwide. In the U.S., brokerage services
provided through TD Waterhouse Investor Services, Inc., Member NYSE/SIPC.
2004 U.S. Investor Perception Study: What Investors Should Know About Investor
Protections Offered by Providers of Fee-based Financial Advice
INTRODUCTION
The businesses of brokerage firms and investment advisors have converged
with respect to providing investment advice to individual investors. The
services of brokers and investment advisors have become almost
indistinguishable to investors, but the Securities and Exchange Commission's
regulatory scheme does not reflect this fact. Currently there is a debate over
the "Merrill Lynch Rule," which provides a regulatory exemption for
stockbrokers to offer fee-based financial advice without providing the same
investor protections as the Investment Advisors Act of 1940. As a result,
stockbrokers and investment advisors are both offering fee-based financial
advisory services, but are subject to different regulations and therefore
provide unequal levels of investor protection.
OBJECTIVES OF THE STUDY
The TD Waterhouse 2004 Investor Perception Study examined investor
awareness, expectation, concern and impact around the unequal levels of
investor protection provided by stockbrokers and investment advisors offering
fee-based financial advice. In particular, the study sought to gauge:
* The relevance of unequal levels of investor protection around fee-based
financial advice
* Whether investors understand that different levels of investor
protection exist for the same services
* Whether investors are concerned about different levels of investor
protection for the same services
* If increased awareness of unequal protections would impact an
investor's choice of a financial professional
KEY FINDINGS INCLUDE:
AWARENESS:
There is confusion and low awareness regarding the unequal levels of
investor protection provided by investment advisors and stockbrokers:
* 58% of investors incorrectly believe that both stockbrokers and
investment advisors have a fiduciary responsibility to act in an
investor's best interest in all aspects of the financial relationship
-- Only 25% of investors indicated they were aware that investment
advisors already have a fiduciary responsibility to act in an
investor's best interest in all aspects of the financial
relationship
-- 44% of investors were not aware that stockbrokers do not have a
fiduciary responsibility to act in the investor's best interest
in all aspects of the financial relationship
* 63% of investors incorrectly believe that both stockbrokers and
investment advisors are required to disclose all conflicts of interest
prior to providing financial advice
-- Only 17% of investors indicated they were aware that investment
advisors are already required to disclose all conflicts of
interest prior to providing financial advice
-- 51% are not very aware or not aware at all that stockbrokers are
not required to disclose all conflicts of interest prior to
providing financial advice
EXPECTATION:
Although awareness is low, investors have high expectations regarding
protections offered by providers of fee-based financial advice.
* 69% expect all financial professionals that offer fee-based financial
advice to provide the same level of investor protection
* 83% expect all financial professionals that offer fee-based financial
advice to act in the investor's best interests in all aspects of the
financial relationship
* 84% expect all financial professionals that offer fee-based financial
advice to have the same conflict of interest disclosure requirements
* 78% expect a stockbroker to disclose all conflicts of interest to an
investor in a financial relationship either before providing financial
advice or before and regularly thereafter
* 84% expect both stockbrokers and investment advisors providing fee-
based financial advice to be subject to the same industry regulation
CONCERN:
Furthermore, investors are very concerned when they learn that there are
unequal levels of protection provided by stockbrokers and investment advisors.
* 81% were either very concerned or somewhat concerned that both
stockbrokers and investment advisors provide fee-based financial advice
yet offer unequal levels of investor protection
* 83% were either very concerned or somewhat concerned that all financial
professionals offering fee-based financial advice are not subject to
the same industry regulation
* 82% were either very concerned or somewhat concerned that stockbrokers
are not required to act in the investor's best interest in all aspects
of the financial relationship
* 82% were either very concerned or somewhat concerned that stockbrokers
are not required to disclose all conflicts of interest prior to
providing financial advice
IMPACT:
If American investors had a higher degree of awareness of the unequal
levels of protection provided by stockbrokers vs. investment advisors, it
would impact their choice of financial professional.
* 86% indicated it would impact their choice of financial professional if
they understood the different levels of investor protection from
stockbrokers and investment advisors offering the same services
* 81% were either very likely or somewhat likely to seek services from an
investment advisor if they knew investment advisors were required to
act in the investor's best interest in all aspects of the financial
relationship
* 81% were either very likely or somewhat likely to seek financial advice
from an investment advisor if they knew investment advisors were
required to disclose all conflicts of interest prior to providing
financial advice
* 88% indicated they would not seek financial advice from a stockbroker
if they knew stockbrokers were not required to act in the investor's
best interest in all aspects of the financial relationship
* 87% indicated they would not seek financial advice from a stockbroker
if they knew stockbrokers were not required to disclose all conflicts
of interest prior to providing financial advice
IMPACT (CONTINUED):
In addition, as investors became more informed of the unequal protections
throughout the course of the survey their levels of expectation increased
significantly. These findings represent the last sequence of questions in the
survey.
* 92% expected that all financial professionals who offer fee-based
financial advice should provide the same levels of investor protection
* 94% expected that all financial professionals who offer fee-based
financial advice should be required to adhere to the same industry
regulation
* 95% expected that financial professionals who offer fee-based financial
advice should have a fiduciary responsibility to act in the investor's
best interest in all aspects of the financial relationship
* 95% expected that all financial professionals who offer fee-based
financial advice should be required to disclose all conflicts of
interest prior to providing financial advice
In the end, a significant majority of the American investing public
expressed support for Congress to enact legislation that creates a clear,
uniform standard of investor protection for all stockbrokers and investment
advisors who provide fee-based financial advice.
* 90% of the American investing public expressed support for Congress to
enact legislation that creates a clear uniform standard of investor
protection for all stockbrokers and investment advisors who provide
financial advice to investors
* 87% indicated that Congress should enact legislation that requires
stockbrokers to have a fiduciary obligation to act in the investor's
best interest in all aspects of the financial relationship
* 90% indicated that Congress should enact legislation that requires
stockbrokers to disclose all conflicts of interest prior to providing
financial advice
* 88% believe legislation that creates a uniform standard of investor
protection applicable for both stockbrokers and investment advisors
would boost investor confidence
CONCLUSION
American investors have a low level of awareness about the regulations
governing stockbrokers and investment advisors. The survey results indicate
investors are unaware of, and confused about the unequal protections offered
by those who provide fee-based financial advice. However, investors have very
high expectations regarding the protections that should be provided by
stockbrokers and investment advisors offering fee-based financial advice.
Consequently, investors expressed a very high level of concern regarding the
disparities in protection based on existing regulations. The survey clearly
indicated that if investors had a higher degree of awareness, this knowledge
would impact their choice of a financial professional.
METHODOLOGY
TD Waterhouse USA commissioned research firm Penn, Schoen & Berland
Associates, Inc. to conduct interviews with 1,000 American investors who own
stocks, bonds, or mutual funds outside of a company-sponsored plan. The
survey has a margin of error of + or - 3%. Interviews were conducted online
from October 18 - 22, 2004.
SOURCE TD Waterhouse USA
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http://www.tdwaterhouse.com
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http://www.prnewswire.com/comp/959635.html
CONTACT:
Media - Jennifer Olegario for TD Waterhouse
USA, +1-212-908-7117
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