As a decision regarding a fiduciary rulemaking hangs in the balance, two SEC commissioners are espousing “investor testing” as a way to help the agency better disclose broker and advisor standards of care.
At press time in early December, the industry was still awaiting clarity from SEC Chairwoman Mary Jo White on where she stands regarding a uniform fiduciary rule for brokers and advisors, but SEC Commissioner Kara Stein said in late November that the commission’s Division of Corporation Finance is “spearheading a very important project examining the effectiveness of disclosures.”
Also expected to be released early this year is the SEC’s economic analysis of a fiduciary rulemaking.
The Division of Corporation Finance’s disclosure project, Stein said in 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.”
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But the advisory industry maintains that disclosures are not enough to satisfy the fiduciary standard.
While the SEC has “at times varied the types of disclosures, summarizing or simplifying certain documents,” Stein said, “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.”