Democrats in the U.S. House of Representatives Financial Services Committee are expected to approve a bill as early as today that would require the Securities and Exchange Commission to go back to the proverbial drawing board to do more extensive consumer testing before it can approve the disclosures in its proposed advice rule.
The SEC Disclosure Effectiveness Testing Act, which targets in part the SEC’s proposed Regulation Best Interest advice regulation, would require the agency to conduct extensive testing to ensure that consumers have the information they need to make an informed decision about whether they want to work with a broker or registered investment advisor.
The bill’s author, Rep. Sean Casten, an Illinois Democrat, has been critical of the disclosure testing the SEC did and said yesterday in a panel discussion that more testing is needed to ensure that the proposed advisor disclosures (Form CRS, or the Customer Relationship Summary) actually inform consumers.
The SEC performed investor testing on Form CRS, which included an online survey of 1,800 individuals and 31 one-on-one interviews. The results, however, showed that the disclosures did not help investors understand the key differences between hiring a broker and hiring an RIA or any conflicts of interest they bring to the table.
“Does anyone here believe that only 31 qualitative interviews is enough?” asked Casten at a hearing last week, referring to the number of one-on-one customer interviews the SEC performed after proposing Form CRS.
SEC testing with customers shows the “disclosures aren’t well understood,” said Barbara Roper, director of investor protection at the Consumer Federation of America. “If they were required to do real quality testing … they could work with disclosure design and drafting experts to get disclosure right.”
Consumer and advisor groups, including the AARP, the Consumer Federation of America and the CFP Board, even paid for their own investor testing last year to demonstrate that the SEC disclosures confused consumers more than helped them.
While GOP members of the House Financial Services Committee argued yesterday that the bill will delay the SEC’s advice rule and its purported investor protections, Casten said his goal is to improve critical consumer disclosures, not slow down the agency.
“The important thing here is to do it right and provide retail investors with the information they need,” he said. “It is clear there is more work to be done, and that is why this bill is so important.”
Chairwoman Maxine Waters (D., Calif.) said the legislation is necessary to “build on the SEC's investor testing of Form CRS and require it to retest any substantive changes that have a significant impact on investors.”