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Financial Planning > UHNW Client Services > Family Office News

8 top concerns of SEC investor advocate

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Millennials, fiduciary duty and retirement readiness are among the Office of the Investor Advocate’s top concerns for the coming fiscal year.

The Office of the Investor Advocate – which was created at the Securities and Exchange Commission on Feb. 24, 2014, to help ensure that the needs of investors are considered as decisions are made within the Commission, at self-regulatory organizations and in Congress – has released its annual report on objectives. Rick Fleming is the head of the office.

The report establishes the investor advocate’s policy agenda for fiscal year 2016, narrowing its focus to a “manageable” list of eight issues.

Here are eight of the Office of the Investor Advocate’s top concerns:

handshake1. Fiduciary duty

Fiduciary duty has been a hot-button item, thanks to the Department of Labor’s fiduciary rule reproposal and SEC Chairwoman Mary Jo White calling for the implementation of a uniform fiduciary standard for broker-dealers and investment advisers under the Dodd-Frank Act.

The Office of the Investor Advocate’s report warns that “an ill-advised SEC [fiduciary] rule could be worse than no rule at all.”

According to the report, a rule from the SEC could dilute the existing standard for investment advisors in an attempt to adopt a “harmonized” standard for broker-dealers.

A fiduciary duty rule is intended to reduce investor confusion about the differing standards of care for investment advisors and broker-dealers. However, the Investor Advocate believes “a poorly designed rule could create even worse investor confusion by claiming to give investors the protection of a ‘fiduciary duty’ that is, in fact, less stringent than the traditional fiduciary duty that applies in other relationships of trust,” according to the report.

The Office of the Investor Advocate says it will “attempt to provide a voice for investors as this important issue is addressed by policymakers.”

“We will fight to avoid these outcomes and to encourage rulemakings that are as strong as possible for investors,” the report states.

jumping2. Millennials

The office says it will “examine economic issues germane to millennials in greater depth” in the coming fiscal year.

“We will, among other things, evaluate their financial literacy, the manner and extent in which they participate in financial markets, and the differences between millennials and preceding generations,” the report states. “We will also consider whether proposed changes to laws, policies and regulations are forward-looking and anticipate the needs of a new generation of investors.”

old couple3. Retirement readiness

Studies abound on the topic of “retirement readiness,” but the Office of the Investor Advocate finds a lack of consensus on how financially prepared pre-retirees are. Which is why the office believes this area would benefit from further objective study.

“If the research demonstrates that Americans generally are prepared for retirement, then no further action may be required,” the report states.

But if the data finds that Americans are, in fact, unprepared for retirement, the office says it will consider potential policy approaches to address the problem.

magnifying4. Disclosure effectiveness

The office plans to work alongside others at the SEC to improve disclosure to investors – including the modernization of investment company reporting and variable annuity disclosure.  

On May 20, the SEC proposed amendments to modernize the reporting and disclosure of information by registered investment companies – which the investor advocate supports.

“We believe the means of disclosure is almost as important as the content, and that disclosure systems need to be modernized to achieve greater efficiency, accessibility and usefulness,” the report states.

Regarding variable annuity disclosure, the office says it “strongly” supports SEC staff efforts to address the problem of lengthy and complex disclosure for each variable annuity.

Disclosures should “tell the full story — the key facts that investors need to know about the risks and costs, as well as the benefits, of their investment,” according to the investor advocate.

budget5. Financial reporting and auditing

In the coming fiscal year, the Office of the Investor Advocate plans to track potential changes involving accounting, auditing and related issues – primarily focusing on two broad topics.

The first involves the convergence of global accounting standards in general, and of U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards in particular.

The second involves proposed new disclosures by audit committees and auditors. On June 5, SEC Chief Accountant James Schnurr announced that his office was developing a concept release on audit committee disclosures. If the SEC issues such a release, the Office of the Investor Advocate says it will review the comments, interact with a variety of stakeholders, and evaluate the impact that proposed changes would have on investors.

market6. Municipal market reform

According to a 2012 SEC report on municipal markets, the relative illiquidity and lack of price transparency in municipal securities has inhibited the efficiency of the municipal securities market.

The Office of the Investor Advocate supports the adoption of reforms that would improve price transparency, fair pricing and best execution obligations.

In fiscal year 2016, the Office of the Investor Advocate says it will continue to encourage additional reforms designed to benefit investors in the municipal securities markets.

“In particular, we will explore ways to improve pretrade price transparency and the accounting practices of issuers,” the report states.

equity7. Equity market structure

There are several ongoing initiatives involving equity market structure that the Office of the Investor Advocate plans to monitor public comments, review data and assess throughout fiscal year 2016.

The Office of Investor Advocate says it will review recommendations generated by the SEC’s recently formed Equity Market Structure Advisory Committee, which met for the first time in May to discuss and debate the structure and operations of the U.S. equities market.

The office also plans to monitor public commentary on the tick-size pilot program, a proposal by the national securities exchanges and the FINRA that the SEC approved in May. The two year pilot program would widen the minimum quoting and trading increments—or “tick sizes”— for stocks of some smaller companies.

In addition to monitoring ongoing initiatives, the office will undertake its own analysis of potential market structure reforms. Asking questions like, “How could we improve liquidity and price discovery?” or “Could lowering exchange access fees and rebates improve market quality for investors?”

rope8. Shareholder rights and corporate governance

In the coming year, the Office of the Investor Advocate says it will consider issues involving shareholder rights and corporate governance, paying special focus on the rules governing shareholder proposals and the proxy voting process.

During fiscal 2016, the office will look for ways to enhance the fairness, efficiency and utilization of the proxy voting process.


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