Forty-three percent of investors only vaguely understand the difference between brokers and advisors, according to a recent survey conducted by Penn, Schoen & Berland Associates on behalf of brokerage firm TD Ameritrade. The survey follows a poll conducted two years ago that showed 41 percent of investors did not know that stockbrokers and investment advisors offered different levels of protection. The findings are particularly alarming in light of the April 2005 passage of the Broker-Dealer Exemption Rule, which permits brokers to act like registered investment advisors (RIAs) without requiring similar fiduciary responsibility and conflict of interest disclosure.

Brokerage firms offering fee-based advice services are required to make clear that, unlike RIAs, they are not under any obligation to act in a client’s best interest. Yet, after reading disclosures to this effect on applications and marketing materials, 66 percent of investors surveyed felt that the statement was insufficient. It was, however, an effective deterrent. Seventy-nine percent of investors surveyed felt less inclined to go to a brokerage firm for advice after reading the disclosures.

The survey was based on interviews with a representative sample of 1,000 investors in the United States between the end of April and the beginning of May.