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Uncertainty on Advisor Conduct Rules Raises Costs, Hurts Investors: SEC Chief

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In crafting standards of conduct rules for brokers and advisors, preserving investors’ choice and lowering their costs are Securities and Exchange Commission Chairman Jay Clayton’s paramount concerns, he reiterated Thursday.

“What is clear is that one form of relationship is probably not optimal for investors,” Clayton said during a Q&A session with ICI President and CEO Paul Schott Stevens at the Investment Company Institute’s annual membership meeting in Washington. “There are some investors who are very much benefited by a commission model; they will pay less for the same or better service than those who have the typical AUM-based fee on the investment advisor side. And then there are a lot of people on the investment advisor side who will feel that’s a better service and better value for them.”

Stevens called the standards of conduct issue for brokers and advisors, along with the Labor Department’s now defunct fiduciary rule, likely “the longest, most convoluted regulatory process perhaps in the history of the SEC and the history of the financial markets.”

He asked Clayton why he “tackled” the issue right away.

“I looked at this [issue], it was clear that there was confusion in the marketplace; it was clear that everyone was adjusting their behavior in the face of uncertainty. And when people are adjusting their behavior in the face of uncertainty, costs go up,” Clayton responded. “And our job is to give investors the best access to investment opportunities with appropriate protection, and at the least cost.”

If the SEC “didn’t step up and bring clarity to this space, that uncertainty was going to continue, which was going to raise drag for investors over time, and that’s just inconsistent with what our mission is,” Clayton continued. “So we had to take it on.”

Maintaining choice is also better for investors, Clayton said, “because it leads to competition. Competition among the people in this audience has in many ways” benefited investors over time. “Fees have come down, services have gone up. The investor engagement today is far superior to the engagement a decade ago.”

Clayton added: “People are paying less for better service than they were a decade ago and I want to continue that trend.”

— Check out DOL to Issue New Rules on Fiduciary Duties: Acosta on ThinkAdvisor.