Consumer perceptions of financial advisory titles in the United States and implications for title regulation

Abstract

AbstractMany professionals in the United States financial services industry refer to themselves as financial advisers despite tremendous variation in business practices, compensation methods, and duties to act in the best interest of their clients. As a result, both the Securities and Exchange Commission (SEC) and state securities regulators have recently considered title regulation aimed at promoting consumer clarity. However, there is little empirical evidence to inform how consumers actually perceive the use of such titles. This study examines consumer perceptions via two studies of U.S. consumers conducted using Amazon's Mechanical Turk. Findings from the first study (n = 665) suggest that consumers perceive common industry titles as different from one another in a manner that is consistent with the differentiation of advice professions (e.g., financial adviser, financial planner, financial counsellor, investment consultant and investment adviser) from sales professions (e.g., investment salesperson, stockbroker and life insurance agent). Findings from a second study using a higher‐income sample (n = 334) compared the influence of titles on perception to the influence of disclosure on perception. The second study again found evidence of consumer differentiation between professional titles (financial adviser and stockbroker). However, the effect sizes associated with the use of different titles were much smaller than the effect sizes associated with disclosure statements that were tested in this study, suggesting that disclosure regulation may be more effective in promoting consumer clarity than title regulation. Other implications regarding the potential efficacy of proposed regulatory frameworks are discussed.