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Regulation and Compliance > Federal Regulation > SEC

Rhoades, Borzi: What to Expect From Consumer Advocate Roper at the SEC

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What You Need to Know

  • Barbara Roper will likely help SEC Chair Gensler define best interest under Reg BI, said Ron Rhoades.
  • She has a deep understanding of the securities laws and the history of SEC regulation, said Phyllis Borzi.
  • In her attempts to protect investors, Roper could end up limiting their choice, says attorney Nick Morgan.

Barbara Roper’s new role as senior advisor to Securities Exchange Commission Chairman Gary Gensler likely signals regulatory changes afoot in several areas — namely Regulation Best Interest and the Customer Relationship Summary, or Form CRS.

Roper’s “extensive knowledge of the issues involving standards of conduct and investment products provides her with the unique opportunity to assist the Commission in many areas,” Ron Rhoades, associate professor of finance at Western Kentucky University and director of its personal financial planning program, told ThinkAdvisor Thursday in an email.

Roper, former director of investor protection at the Consumer Federation of America, “is likely to examine how ‘best interest’ can be defined,” Rhoades opined, adding that he expects to see “several draft rules emerge in 2022 of a significant nature.”

James Lundy, partner at Faegre Drinker in Chicago and a former SEC attorney, added in a separate email that “retail sales practice standards, such as Reg BI, will continue to be interpreted and applied broadly and aggressively by the SEC’s enforcement and examinations staffs under this Commission. … It appears that Chair Gensler will be looking to [Roper] for guidance in these areas as his initiatives in leading the SEC continue to evolve.”

Roper’s appointment to senior advisor and to Gensler’s leadership team “aligns with the messaging that we have been hearing out of the SEC since Chair Gensler’s nomination by the President in early February. As such, the ‘Main Street’ initiatives put in place under [former] Chair [Jay] Clayton will likely remain in some form and continue to be expanded.”

Phyllis Borzi, the former head of the Labor Department’s Employee Benefits Security Administration, said in an email that Roper’s SEC appointment “is a big loss to the CFA, but an extraordinary benefit” to the SEC.

Roper “has been a thoughtful and effective advocate for investors for many years so her move to the SEC will bring a powerful voice for them to the regulatory table. But, as I learned in dealing with Barb as the DOL developed and refined its fiduciary conflict of interest regulations, among the most important skills that Barb also will contribute are her deep understanding of the securities laws and the history of SEC regulation, her ability to understand opposing views and to find areas of commonality, and her practical approach to consensus building.”

The consumer group also lost Micah Hauptman, its longtime financial services counsel, last September after he joined SEC Commissioner Caroline Crenshaw’s office.

Knut Rostad, president of the Institute for the Fiduciary Standard, added that Roper “is the most qualified” to fix Reg BI and Form CRS.

Rhoades anticipates Roper pushing for changes to Form CRS “so that consumer confusion is minimized. This may well involve a substantial re-write of Form CRS, and testing any new disclosure forms and language with consumers.”

As for Reg BI, Roper told Gensler in late April while at the consumer group that reforming broker and advisor regulation “should be a top priority because it affects the most vulnerable investors.”

Unfortunately, “despite the extensive attention this issue received in the previous administration, the need for a fresh approach to this issue remains undiminished,” Roper said.

While Roper told Gensler then that Reg BI doesn’t need to be scrapped, the rule, she said, is “too weak.”

The requirement to act in the customer’s best interest that lies at the heart of both Reg BI and the Advisers Act fiduciary duty “has no generally accepted meaning under the securities laws,” Roper wrote.

In the investment advisor arena, Roper “may desire to tackle changes to the SEC’s interpretation of the investment adviser’s fiduciary standard,” Rhoades opined. “A different interpretation will likely stress the need to avoid, rather than merely disclose, most conflicts of interest. Barb likely will stress the principle that no client would ever provide ‘informed consent’ to be harmed.”

Nicolas Morgan, a partner at legal defense firm Paul Hastings and a former SEC trial attorney, noted that “it’s fairly easy to predict that she will be a force within the Commission toward regulations that are intended to protect investors. Whether investors actually want increased regulations that decrease their choices is not likely to be part of the discussion.”

An investor “who simply wants a broker to facilitate transactions and not provide fiduciary duty bound advice would be out of luck under Ms. Roper’s SEC that will attempt to subject all securities industry professionals to the highest fiduciary standards available even if that increases costs for investors who don’t want fiduciary advice,” Morgan said.

Investors curious about cryptocurrencies will also find a cautious SEC. “Recall that in 2019 Ms. Roper’s CFA called for a regulatory ‘moratorium on Facebook’s Libra and related plans’ until Congress and regulators could sort things out.”

Said Morgan: “Look for increased restrictions on investor choice in the name of investor protection as Ms. Roper’s influence at the SEC begins to be felt.”

Another issue that has long been on Roper’s radar: 12b-1 fees, Rhoades said. “She likely regards them as confusing to consumers, not beneficial to a fund’s shareholders, and as ‘advisory fees in drag.’ It is possible she could move the ball forward in this area, by suggesting their elimination.”

Pictured: Barbara Roper


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