The Securities and Exchange Commission is counting on compliance officers, now more than ever, “to do their jobs” as more consumers seek their help, the agency’s chairman, Jay Clayton, said in mid-April at the securities regulator’s 2018 National Compliance Outreach summit, while other SEC officials detailed new rules that lie ahead.
“The importance of investment advisors and investment companies to our investors — and in particular our retail investors — has increased dramatically,” Clayton said at the agency’s 10th annual compliance summit for advisors and investment companies.
He cited a statistic showing a “shift from direct investment by our retail investors to investment through investment companies and through advisors,” stating that the “numbers are dramatic.”
This trend, Clayton continued, “only increases the importance of the compliance function at advisors’ [firms] and investment companies. We’re counting on you to do your jobs. We know your jobs are not easy.” Pete Driscoll, director of the SEC’s Office of Compliance Inspections and Examinations, noted at the event that the investment advisory industry is “growing dramatically,” with assets under management now totaling $82 trillion.
Indeed, compliance officers “tend to see issues, problems and trends before others do,” and “have a very different and valuable perspective,” stated Dalia Blass, director of the SEC’s Division of Investment Management (IM) in comments at the event. She asked compliance officers to be sure they provide input when their firms are filing comment letters or meeting with SEC personnel on proposed rules.
“Please consider if you can participate,” she asked the attendees. When an SEC proposal “is out for comment, put together a skeletal strawman — bare bones, something that would test compliance issues. These elements can go a long way to providing us with valuable information,” Blass said.
Rulemakings Ahead What’s on the agency’s plate this year in terms of rulemakings? First is the agency’s fiduciary, or standards of conduct rule, that the SEC was to discuss and vote on just days after press-time in mid-April. Blass said that the standards of conduct rulemaking, a joint effort by the IM and Trading and Markets divisions, also incorporates “tremendous input from many divisions and offices throughout the commission.”
The agency put forth a three-pronged proposal: New and amended rules and forms requiring RIAs and broker-dealers to provide a brief relationship summary — or disclosure document — to retail investors; a rule to establish a standard of conduct for broker-dealers; and an SEC “interpretation” of the standard of conduct for investment advisors. (See Washington Watch for details)
SEC Commissioner Hester Peirce has said that she supports the rule including measures to address broker and advisor titles.
Karen Barr, president and CEO of the Investment Adviser Association, asked Peirce at the group’s annual compliance conference in Washington in mid-March whether the agency should address regulating broker and advisor titles in its anticipated fiduciary rule, as varying titles have led to investor confusion.
Barr told me at press time in mid-April that the SEC “may address the titles issue in either the proposal related to the standard of conduct for brokers or in connection with the disclosure document.”
Addressing titles, Barr adds, may also not be “part of the formal [SEC] proposal but simply raised in the ‘request for comment’ section instead.” Paul Cellupica, deputy director of the IM division, stated at the compliance outreach event that “a major goal” of the standards of conduct rulemaking is “to address investor confusion and lack of clarity among investors regarding the services that they receive from investment advisors and broker-dealers.”
Compliance officers at investment advisors and broker-dealers, Cellupica said, “are in some ways best situated to understand whether what the Commission is proposing is going to get at that problem. You’re very well situated to suggest ways in which the Commission’s proposal can be improved.”