The Securities and Exchange Commission’s forthcoming best-interest proposal will need to address the titles that brokers, dually-registered advisor reps and others use with customers in order to create meaningful protections for investors and the markets, SEC Chairman Jay Clayton told securities regulators and attorneys at PLI’s SEC Speaks conference on Friday.
“You can’t do this without looking at labels,” Clayton said. “We have to get to the substance of what these labels mean.”
Clayton, who kicked off the two-day Washington D.C. event, said that clearing up investor confusion would be a leading priority. “There is no doubt there is a great deal of confusion in the marketplace as to what standard of conduct applies to a particular relationship,” he said.
Attorneys who have met with Clayton told Financial Advisor that he would like to take “a pragmatic approach” to best-interest rules, which would apply solely to brokers and dually-registered investment advisor reps. Investment advisors would continue to be regulated as fiduciaries under the Advisor Act of 1940.
Establishing regulatory clarity and harmony are also a priorities for the SEC. In one hypothetical situation Clayton described, a single investor’s account could expose advisors to the rules and regulations of at least five state and federal regulators, in addition to state attorney generals and possibly bank regulators.
“I’m all for regulatory coordination, but having that many people with different standards and different lenses around that same relationship ... I think we can bring some regulatory harmony to that relationship,” Clayton said.
In Clayton’s example, a hypothetical Ms. Jones has a 401(k), an annuity and a brokerage account that holds a few stocks. “Ms. Jones relationship with her investment advisor [and] broker-dealer is regulated by at least five agencies I can count: the state securities regulator, state insurance regulator, Finra, [the] Department of Labor and the SEC,” Clayton said.
“I don’t think it is any secret that we are going to make a big effort to bring clarity and harmony to the investor advisor fiduciary standard of conduct. This is something the market needs. This is something regulators need,” added Clayton, whose presentation included a series of questions from former SEC Chairman Harvey Pitt.
“There’s been a great deal of energy expended regarding the articulation of a meaningful standard of conduct for all investment professionals,” said Pitt, who was SEC chairman from 2001 to 2003.
“Can you tell us what you anticipate the benefits will be for retail investors if the Commission [the SEC] can develop such a standard?” Pitt asked Clayton during the presentation.