Maybe "one-size-fits-all" disclosure isn't the way to go, SEC Commissioner Kara Stein says.

Just as the industry awaits clarity from Securities and Exchange Commission Chairwoman Mary Jo White on where she stands regarding a uniform fiduciary rule for brokers and advisors, SEC Commissioner Kara Stein said Thursday that the Commission’s Division of Corporation Finance is “spearheading a very important project examining the effectiveness of disclosures.”

Indeed, both Stein and SEC Commissioner Michael Piwowar recently espoused the benefits of “investor testing” as a means to help the agency better disclose broker and advisor standards of care.

The Division of Corporation Finance’s disclosure project, Stein said during a speech at the Consumer Federation of America’s financial services conference in Washington, “presents an opportunity to holistically rethink the disclosure that we offer to investors.”

While the SEC has “at times varied the types of disclosures, summarizing or simplifying certain documents, we still generally take a ‘one-size-fits-all’ approach to disclosure as investor protection. I think we can and should think about whether we can do better.”

Stein, a Democrat, said that the agency “should be smart about requiring disclosures that are genuinely meaningful and useful for different types of investors,” citing the “importance” of investor testing.  

“…We know that the private sector is using [investor testing] to understand its consumers, frequently in a highly-refined manner,” Stein told the CFA attendees. “The Commission should seek to better understand its consumers as well,” and consider ways to provide “different ‘layers’ of disclosure to different types of investors.”

Said Stein: “We should formulate a plan to incorporate thorough investor testing into as many of our projects as possible.”

When asked after her remarks at the CFA event if the agency should consider investor testing before moving forward with a uniform fiduciary rulemaking, Stein told reporters: “I think we should look at each rule we do and see where we benefit from it [investor testing].” 

Piwowar, a Republican, said in a late September speech that while he has “not made a decision” about whether he would or would not support a uniform fiduciary duty, he believes that a “fix” to such rulemaking that the agency should explore that could “achieve the goal of improving investor knowledge of what can and should be expected of their broker-dealer and investment advisor” is considering “the value of a concise disclosure document” for brokerdealers and investment advisors. 

To decide what this document should look like and what information it would contain, Piwowar said that the Commission should rely on its authority under Section 912 of the DoddFrank Act and “undertake a temporary testing program to determine what information investors find important and useful in selecting a financial advisor.” The Commission, Piwowar said, “could then test formats in which the information can be presented, and the effect on investor comprehension of the information.”

By doing this, he said, “we would be able to propose a disclosure document that is firmly based on investor input, which is the best and most sensible way to solve the investor confusion issue.”

Piwowar said a possible example the Commission could use in devising its investor testing includes a summary disclosure document similar to the mutual fund summary prospectus. Indeed, Stein said Thursday that the adoption of a summary prospectus was “a great achievement,” as “it fundamentally changed the form of mutual fund disclosures, and how they are delivered.” But that rule is now more than five years old, she said, and the agency should “be thinking of ways to make it more useful to investors by asking them how it can be improved. Investor testing would, I expect, reveal helpful information in this regard.”    

SEC Chairwoman White said in mid-November that “clarity” as to her position regarding a uniform fiduciary rule will come in the “short term.”

What are the odds that White’s forthcoming fiduciary stance includes the words “investor testing”?

— Check out Top Republicans to SEC: Shift Resources to ‘Immediately’ Boost Advisor Exams on ThinkAdvisor.