Elad Roisman, the Senate Banking Committee’s chief counsel, who was nominated on June 4 to serve on the Securities and Exchange Commission, told lawmakers Tuesday during his nomination hearing that it was “important for the agency to act” in proposing its Regulation Best Interest for brokers, and he encouraged the public to comment on the entire advice package.
During his nomination hearing before the Senate Banking Committee, Roisman — who was nominated to replace Commissioner Michael Piwowar, a Republican, who left his post on July 7 — was questioned about the agency’s advice standards package.
“It’s important for the public to comment … Do people think that the current differentiation of standards [between brokers and advisors] is appropriate? This is one where the SEC needs to look at the comment file and meet with people and see what they got right and what could be improved. It’s a good first step, but I look forward, if confirmed, to keeping an open mind and seeing if there are any changes necessary.”
Sen. Mike Rounds, R-S.D., probed Roisman on his views on the SEC’s Regulation Best Interest, stating that it’s the SEC’s proposal “to address the fiduciary standard for broker-dealers providing investment advice to retail customers.”
“Can you discuss your views on what a proper fiduciary standard should look like?” Rounds asked.
“There’s a proposed rulemaking, so I have to be careful just not to prejudge,” Roisman said, adding that he looked forward to meeting with interested parties and “reviewing the very lengthy comment filing, because [the comments] are going to be able to tell you what [the agency] got right and what can be improved.”
Generally, he continued, in determining whether the rule is “appropriate,” it’s “important to look at things such as ensuring access to financial advice, as well as ‘do investors understand the nature of the relationship with a financial service provider?’, including the conflicts, how those are addressed or mitigated. Obviously investor protection.”
Another “critical thing to consider,” he added, “is whether the rule is business-model neutral, meaning that the SEC is not picking winners and losers,” and “preserving investor choice and different type of services” for investors.
Sen. Bob Menendez, D-N.J., stated that the SEC’s current proposal “fails to establish” a uniform fiduciary standard for broker-dealers and investment advisors and “puts the burden on the customer to understand the difference between brokers and investment advisors.”
Menendez then queried Roisman on why customers should have to bear the burden “of trying to decipher complex legal relationships to understand whether they are making good investment decisions.”
On whether there should be a “uniform fiduciary standard for investors,” Roisman responded, “I think it’s important for there to be investor choice and different types of services provided to investors, and I think it is important for investors to understand the nature of their relationship” with a financial services provider.
The debate has centered on, “if there are conflicts, they are addressed,” he continued, “and whatever the SEC does, that’s critical.”
Sen. Elizabeth Warren, D-Mass., stated that she has “some serious concerns” with the SEC’s proposal, adding that it “won’t come close to eliminating the conflicts that hurt American families.”
Why should your broker be able to have “serious” conflicts of interest, “like receiving monetary awards or other perks for recommending certain investments even if those investments are not in the customers’ best interest?” Warren asked Roisman.
Roisman responded: “I think the SEC has traditionally been a disclosure agency, and one of things that you try to do is provide information to investors so they can make informed decisions. It’s important for them to have adequate disclosure, understand the nature of the relationship, including how conflicts of interest exist and how they can be addressed.”
Warren, along with Sens. Sherrod Brown, D-Ohio and Cory Booker, D-N.J., told FINRA CEO Robert Cook in a Friday letter that the SEC’s Regulation Best Interest for brokers is “confusing and ambiguous,” and asked him to provide the Financial Industry Regulatory Authority’s “interpretation” of the SEC’s proposal by Aug. 3.
“Because FINRA serves as the primary regulator of the brokerage industry, your interpretation of the SEC’s proposal is critical to understanding how the proposal would affect retail investors,” the senators said.
The comment period on the SEC’s advice standards package ends on Aug. 7.
Roisman told committee members that some of his priorities, if confirmed, would include furthering the SEC’s mission, “and that entails promoting investor confidence in the markets as well as the SEC itself. I’ve heard from members of this committee and friends and families that there’s a perception that the markets are rigged against the little guy. I think it’s important for the SEC to dispel that notion, and one of the ways they can do that is by having a strong enforcement program, a program that holds regulated entities and individuals accountable.”
The SEC also needs to listen to small-business owners and investors “who may not make it to Washington,” he said, as “their perspectives are incredibly important in what the SEC is doing right and what the agency can improve on.”