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Groups Fight SEC for Longer Comment Period on Conduct Rules

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Consumer groups are urging the Securities and Exchange Commission to extend the comment deadline for the regulator’s “sweeping” Regulation Best Interest and Customer Relationship Summary, or Form CRS, to allow enough time to test the new disclosures on investors and report the results.

“A fundamental premise of the Commission’s proposed regulatory approach is that a summary disclosure document can be developed that will enable investors to better understand the differences between brokerage accounts and advisory accounts, including the standards of conduct that apply, and make an informed choice among the available accounts and services,” the groups told SEC Chairman Jay Clayton in a May 21 letter.

The groups include the Consumer Federation of America, CFA Institute, Certified Financial Planner Board of Standards, The Committee for the Fiduciary Standard, Consumer Action and the Financial Planning Association.

Until testing “verifies that this is a reasonable assumption — including with regard to the least financially sophisticated investors most in need of enhanced protections — we cannot fairly evaluate the Commission’s proposal to maintain separate and unequal standards for securities professionals that the Commission has deemed to be providing essentially the same service, investment advice, through different business models,” the groups wrote.

The SEC is taking comments on its three-pronged standard of conduct proposal — which includes Reg BI and Form CRS — until Aug. 7.

The Investment Adviser Association sent a separate letter to Clayton on May 25, also asking that the comment period be extended.

IAA stated that it applauds the Commission “for its commitment to conduct investor testing on the efficacy of proposed Form CRS.” However, “because it is not at all clear that the results of investor testing will be received and made public by the Commission sufficiently before” the comment due date, in order “to permit analysis and comment, we respectfully request that the Commission extend the due date to provide enough time for commenters to fully consider and incorporate the results.”

Barbara Roper, director of investor protection for the CFA, told ThinkAdvisor on Wednesday that the 90-day comment period extension requested may not be 90 days after Aug. 7. “It depends on when the SEC completes its testing of the proposed Form CRS disclosures. I think it is quite unlikely that the disclosure effectiveness testing (as opposed to more general testing regarding investor confusion) will be completed before the end of the comment period,” Roper said.

Whenever the agency “get[s] that testing done, and the results released to the public, we’d like the additional comment time to start from then.”

She added: “You simply can’t evaluate the overall regulatory approach of maintaining different standards for brokers and advisors until you know whether the proposed disclosures enable investors, including financially unsophisticated investors, to make an informed choice between the different business models.”

Clayton described the proposed Form CRS in recent comments as “a candid conversation” between an advisor/broker and their clients about their relationship and a “critical part” of the standard of conduct package. “I’m anxious to hear what you think,” Clayton said.

Discussing whether the SEC was asking too much of a four-page form, Clayton said, “I hope it’s short enough that people will read it.”

Registered investment advisor David Marotta equated the proposed Form CRS in his recent comment letter to the SEC as a “new Form ADV Part 3,” stating that “disclosures don’t work. We currently have massive disclosures and yet consumers still don’t understand the difference between ‘fee-based’ and ‘fee only.’”

Said Marotta: “Now the SEC is proposing to add a Form ADV Part 3 to the list of required documents that firms are responsible to complete every year.”

Industry officials have stated that a final rule on the three-pronged package is a couple of years off — not until 2020.

“This regulation is the beginning of a marathon, not a sprint,” said Brad Campbell, partner at Drinker Biddle and Reath’s Washington office, during a Wednesday webcast held by the law firm to discuss Reg BI.

Campbell, the former head of the Labor Department’s Employee Benefits Security Administration, added, however, that he sees a “real incentive” by Clayton as well as the Trump administration to get a rule in place before the next administration, regardless of who’s in office.

“I just think the variables in terms of who the [SEC] commissioners are could make it difficult,” Campbell said, referring to the upcoming departure of SEC Commissioner Michael Piwowar, and the expected departure this year of Commissioner Kara Stein.

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