Searchable Bad Broker Database ‘Long Overdue’ But Will Face Scrutiny

Clayton told audience members that the SEC should continually be asking: “Are there opportunities to deter, mitigate or eliminate wrongdoing before an enforcement action becomes necessary?” Looking back at enforcement actions brought by the agency, he continued, “a common theme emerges — where opacity exists, bad behavior tends to follow.”

12b-1 Fees, Share Classes in Focus

The agency’s enforcement division, he said, “will continue to be active in pursuing cases where hidden or inappropriate fees are at issue, but we also are exploring whether more can be done to clarify fee disclosures made to retail investors and, thereby, deter and reduce the opportunities for misbehavior.”

As an example, he cited firms that invest clients’ money in a mutual fund share class that charges a 12b-1 fee when a lower-cost share class of the same fund is available, “or advisors may improperly choose to use fund assets to pay expenses that should be paid by the firm.” Customers, he added, “may be deceived if brokers charge fees that are designed to cover the costs of services provided, while also marking up the prices of securities to earn a profit that is not disclosed.”

‘Shorter’ 2018 Agenda

Clayton also said that the agency is “streamlining” its strategic plan for the next four years under what’s called the Reg Flex agenda that regulators are required to file in January. The last strategic plan filed in 2014 contains 66 strategic initiatives and 58 performance goals and indicators, he explained at the event: “I expect those numbers will be noticeably smaller and will reflect, on a Commission-wide basis.”

With Dodd-Frank and other rulemaking mandates, the agency’s “near-term agenda has swelled over the years,” Clayton continued, but “a shorter near-term agenda does not mean that that work of the SEC is slowing down;” the agency is “already making progress on many” near-term projects.

“Between early October, when we submitted our agenda to OMB, and today, the agency has already completed two of the listed rulemakings,” he said. The SEC agenda over a “longer period,” is also front and center, he said, with mandatory Dodd-Frank rulemakings being “top of mind.”

Discussions with SEC Commissioners Kara Stein and Michael Piwowar on their views on SEC priorities, are being reviewed as well, Clayton continued, adding that he looked forward to engaging with SEC Commissioner nominees Hester Peirce and Robert Jackson — who were both confirmed by the Senate Banking Committee in early November and now await Senate approval — on “areas where they have expressed interest.”

Both Mercatus Fellow Peirce and Columbia Law Professor Jackson were supportive of the SEC moving ahead on its own fiduciary rulemaking in testimony before the Senate Banking Committee in late October, but neither cited such a rule as a priority. Cybersecurity, oversight of FINRA, equity and fixed-income market structure as well as executive compensation were more pressing issues in their view.

Jackson told the Senate lawmakers that, “my own view in developing this type of [fiduciary] standard is to make sure that the market and investors have consistency. My concern is that investors are one day going to think they have one standard of protection with retirement assets, and another standard of protection with their brokerage accounts.”

Peirce reiterated her concerns about DOL’s rule “as it’s currently written,” stating that she’s “glad that calmer minds have prevailed and that people at DOL and at the SEC are taking a look at it.”

She added: “It’s important to work with the states as well and try to get everyone in a room to work together for the objective that everyone has, which is to make sure that investors know the type of service they’re getting and that they have access to service.”