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Securities and Exchange Commission Investor Advisory Committee Telephonic Meeting

Securities and Exchange Commission

Investor Advisory Committee Telephonic Meeting

Wednesday, November 7, 2018

Welcome Remarks and Approval of Minutes of Previous Meeting

Securities and Exchange Commission Chairman Jay Clayton

In his remarks, Securities and Exchange Commission (SEC) Chairman Jay Clayton thanked the Investor Advisory Committee for their work to enhance retail investor protection and decision-making by bringing the requirements for financial professionals in line with retail investor expectations. Clayton noted the SEC has received over 6,000 comment letters, 3,000 of them unique, on proposed Regulation Best Interest (Reg BI) and proposed Form CRS. Clayton added that the SEC has also been soliciting feedback through online examples and a series of retail investor roundtables, and the Office of the Investor Advocate has performed investor testing, the results of which will soon be made available in the comment file. Clayton said the SEC staff has been working hard to develop recommendations for the final rule, and he is pleased with the progress the SEC has made in achieving its goals to address investor confusion while preserving choice.

Discussion of the SEC’s Proposed Regulation Best Interest and Form CRS Relationship Summary and the Recommendation of the Investor as Purchaser Subcommittee

Subcommittee Chair Barbara Roper discussed the highlights of the recommendation, noting that the subcommittee recognizes that Reg BI is intended to raise the standard of conduct when broker-dealers provide investment advice, based on fiduciary principles designed to ensure financial professionals act in their customers’ best interest. Roper said the recommendations intend to build on the SEC’s proposal, rather than substitute it for a different approach, and to ensure the SEC achieves its goals. Roper outlined four areas in which the Investor Advisory Committee believes the proposal can be strengthened:

  • The Investor Advisory Committee recommended the SEC should clarify what it means by a “best interest standard” for both broker-dealers and investment advisors, outlining an approach that provides clarity for investors without abandoning the principles-based approach favored by the SEC.
  • The Investor Advisory Committee’s recommendation supports expanding the best interest standard to include rollover recommendations and recommendations by dual registrants regarding account types.
  • The Investor Advisory Committee recommended that the best interest standard is, and should be characterized explicitly as, a fiduciary duty, while making clear that the specific obligations that flow from that duty will vary based on differences in business models. The approach should recognize there are a range of business models for financial professionals, and the SEC should adopt an approach that is uniform in principle but is flexible enough to be applied to the variety of ways advice is provided to investors.
  • The Investor Advisory Committee recommended that before adopting the disclosure obligations, the Commission should conduct usability testing of proposed Form CRS disclosures to ensure they work as intended. The committee also recommended that if the usability testing shows a need for improvements, the SEC should work with disclosure design experts to rectify it to ensure investors are able to make an informed choice among different types of providers and accounts.

Chair Clayton said that the staff has considered these issues, but he looks forward to further reviewing the committee’s “granularity.”

The Investor Advisory Committee voted 16-3 to adopt the recommendations.

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