SEC Must Prioritize Investor Protection, Consumer Groups Say
March 13, 2015 by Arthur D. Postal, arthur.postal@innfeedback.com
WASHINGTON – Eight consumer groups are demanding that the Securities and Exchange Commission (SEC) prioritize its investor protection mission, including implementation of a uniform fiduciary standard on sale of investment products.
The request was contained in a strong letter sent to the SEC by eight consumer groups this week.
The letter charged that the SEC appears in recent years to have “strayed” from its primary mission of investor protection. It went on to say that although the SEC has a large to-do agenda and limited resources, the agency “can no longer afford to relegate these retail investor protection priorities to a back burner.”
A key part of that agenda should be to ensure that investors “have a reasonable expectation that the ‘advice’ they receive from financial professionals will be designed to serve their best interests,” the letter said.
In order to do that, the letter said, the SEC should adopt “one of two simple solutions.” The SEC should either prohibit broker/dealers from holding themselves out as advisors unless they are regulated accordingly, or it should adopt a uniform fiduciary standard designed to ensure that brokers and advisors alike are required to put the interests of their clients first when offering personalized investment advice.
The letter also says that the SEC apparently has ignored implementing a provision of the Dodd-Frank Act that mandates that the agency adopt a pre-engagement disclosure document to assist investors in selecting a financial professional.
The SEC also “should be actively engaged in developing a clear, easy-to-use disclosure document that covers the basic topics investors need to understand to make an informed choice among financial professionals,” the letter said.
Other Dodd-Frank mandates the letter claims the EC appears to be ignoring include dealing with compensation practices by broker/dealers “that create significant and unnecessary conflicts between the interests of their sales representatives and the interests of their customers,” compensation conflicts, 12b-1 fee reform and forced arbitration.
In the area of investment products, the letter said the SEC needs to do more to improve oversight. Issues that the agency should deal with include risk and fee disclosure, stronger oversight and disclosure involving the emerging exchange-trade-fund products.
Moreover, the letter said, the agency should do more to tighten oversight over “increasingly complex and exotic investment products” being sold to retail investors. The letter said that these include structured notes and securitized products “that contain derivatives exposures reminiscent of those that proved so damaging to major banking institutions in 2008.”
The letter also asks the SEC to tighten the definition of so-called “accredited investors,” those investors allowed to buy exotic securities under Regulation D.
“It has long been apparent that the current accredited investor definition does not effectively identify a class of individuals with access to information, the sophistication to understand the risks and merits of such offerings, or the wealth to withstand potential losses,” the letter said.
The letter was signed by officials of the Consumer Federation of America, Americans for Financial Reform, Fund Democracy, Consumer Action, Public Citizen and the AFL-CIO.
This is the same group that formed a coalition in January seeking to create public support for establishing a fiduciary standard of care on the sale of investment products into retirement accounts.
