While only about one-third of all broker-dealers or registered investment advisers offer complex, risky investment products, when such products are sold, BDs are more likely than RIAs to sell them, according to a new study by state regulators.
BDs are twice as likely as RIAs to recommend leveraged and inverse ETFs, seven times as likely to recommend private placements, eight times as likely to recommend variable annuities, and nine times as likely to recommend non-traded REITs, said the North American Securities Administrators Association (NASAA), in a report on the findings of a nationwide examination of broker-dealers and investment advisers it conducted. The exam is intended to provide benchmarking data to help measure the effectiveness of the Securities and Exchange Commission’s new Regulation Best Interest.
The examinations found notable differences between broker-dealers operating under a suitability standard and investment advisers operating under fiduciary duties. For example, RIAs generally took more conservative investment approaches overall, avoiding higher cost, riskier, and complex products. Investment advisers also reported more robust due diligence, disclosure and conflict management practices.
Broker-dealers offered a more diverse set of product offerings than investment advisers.
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