By Cyril Tuohy
A member of the Securities and Exchange Commission (SEC) is calling for the agency to improve disclosure rules that clarify the duties and responsibilities of broker/dealers and investment advisors, whose roles are often confused in the minds of investors.
SEC Commissioner Michael S. Piwowar said the agency should implement a “temporary testing program” to find out what information investors find “most important and useful in selecting a financial advisor.”
He is one of two commissioners on the five-member commission who has expressed reservations about imposing a uniform fiduciary standard on broker/dealers and financial advisors. The standard applies to SEC-registered advisors.
Advocates for change say investors would be better served by uniform standards. Opponents say such standards would raise costs and limit choices for millions of middle-market investors.
In comments delivered to the National Association of Plan Advisors’ “Fly-In Forum,” Piwowar said testing disclosure reform would allow the SEC to experiment with different formats in which to present information and monitor investor comprehension. He gave no indication of how long the trial should last, nor did he propose a date for when it should get started.
Piwowar said existing disclosure requirements are so voluminous and incomprehensible as to be “essentially worthless,” not because there’s too little information but because there is way too much. He related his own disbelief at the amount of information his personal financial advisor sent him when his advisor switched brokerage firms.
“Here I am, an SEC Commissioner and financial economist, and the required disclosures were essentially worthless,” he said. “It is no wonder retail investors are confused when it comes to their financial professionals and the standard of care for the advice they are receiving.”
Burying investors in jargon isn’t a plague foisted solely on retail investors, he said: “Corporate and variable annuity investors face similar disclosure overload.”
Instead, “improving investor knowledge of what can and should be expected of their broker/dealer and investment advisor,” would clarify standards under which brokers and advisors operate without raising costs.
The SEC could test formats already in use with mutual funds through the mutual fund prospectus or in the banking industry through truth-in-lending laws, he said.
“We should consider the value of a concise disclosure document for broker/dealers and investment advisors,” he said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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