Fiduciary Corner

Blaine F. Aikin

Don't discount public company disclosures in fiduciary process

Actionable disclosure information is central to fulfillment of fiduciary obligations and plays an important role in advancing the profession

Sep 30, 2016 @ 3:35 pm

By Blaine F. Aikin

While individual investors rarely read disclosures or give them much thought, advisers should not discount their importance to the fiduciary process. Investment fiduciaries are inherently both producers and consumers of disclosure data.

The duty of care obligates fiduciaries to consider all material information that pertains to the scope of their responsibilities. Investment advisers and managers use public company disclosure data to uncover strengths, weaknesses, opportunities and threats associated with specific companies, industries and the overall investment environment. Their effectiveness as professionals is heavily dependent on the depth, breadth and quality of relevant information they can readily access and apply in their decision-making.

The Securities and Exchange Commission is currently seeking comments on disclosures relating to Regulation S-K, which establishes reporting requirements for public companies. Specifically, the SEC is soliciting comments on Subpart 400 of Regulation S-K that deals with management and governance matters of public companies. The stated purpose of the initiative is to “assess whether the business and financial disclosures in Regulation S-K continue to provide the information that investors need to make investment and [proxy] voting decisions.”

(More: Why broker-dealers are afraid to reveal commissions post-DOL rule)

The request for comment invites input both on potential new disclosure issues the rule should address as well as existing requirements. Comment-worthy new topics cited by the commission include industry-specific disclosures and information about sustainability and governance matters.

The CFA Institute issued a policy alert calling attention to the SEC's request for comments and urging institute members and investors to respond. The alert references relevant research conducted by the institute on topics of special importance to investment professionals: corporate compensation practices, proxy policies, independence and management oversight issues of boards of directors, shareholder engagement efforts and attention to ESG (environmental, sustainability and governance) factors as core business concerns.

The subject areas highlighted by the CFA Institute share three critical characteristics. First, they are directly relevant to management and governance issues of current interest to the SEC. Second, research strongly suggests that business practices in these areas are likely to impact corporate performance, risk exposures and investment potential. And third, the ability of investors and public companies to benefit from insights uncovered in these areas is dependent upon the accuracy, consistency and thoroughness of disclosures required of public companies.

With respect to this last point, it is not a matter of more disclosures, it is a matter of better, more actionable disclosures. The primary impetus for the SEC's current call for comments was the federal “FAST” (Fixing America's Surface Transportation) Act that directed the commission to study the requirements of Regulation S-K to “(1) determine how best to modernize and simplify such requirements in a manner that reduces the costs and burdens on issuers [public companies] while still providing all material information; (2) emphasize a company-by-company approach that allows relevant and material information to be disseminated to investors without boilerplate language or static requirements while preserving completeness and comparability of information across registrants; and (3) evaluate methods of information delivery and presentation and explore methods for discouraging repetition and the disclosure of immaterial information.”

(More: Advisers may drop lower- and middle-income clients due to DOL fiduciary rule: NAIFA survey)

The three-part directive effectively prescribes the defining characteristics of well-designed disclosures: They should be material, manageable and actionable with respect to the needs of intended recipients. Investment advisers, as fiduciaries serving the best interests of investors, are intended recipients who should recognize their obligations to take full advantage of disclosed information.

Information is material if an intended recipient would reasonably benefit from using it in their decision-making process. Professional investment advisers are obligated to stay current with research in the field and apply that knowledge. The topics cited in the CFA's alert are excellent examples of areas of active research and growing significance for investment decision-making.

Manageability is important from the perspectives of both producers and consumers of disclosures. For entities preparing disclosures, manageability pertains to the feasibility and practicality of collecting and disseminating required information. For disclosure recipients, it relates to the ability to interpret and apply the information.

To be actionable, information must not only be material and manageable, it must be relevant to the specific decisions a particular recipient needs to make. Fortunately for advisers, disclosure data is increasingly being captured by regulators and private-sector data aggregators, and portfolio management technology companies are bringing advanced analytical capabilities online for advisers. Thus, increasing marketplace transparency made possible by improved disclosures is making relevant information more accessible and therefore more actionable.

(More: Insurers cite broker-dealer annuity requirements as 'big issue' under DOL fiduciary rule)

Hopefully, the SEC's request for input will generate a particularly robust response from investment professionals by the Oct. 31 deadline. Steady progress in the quest for greater access to high-quality, actionable disclosure information is central to fulfillment of fiduciary obligations and plays an important role in advancing the profession.

Blaine F. Aikin is executive chairman of fi360 Inc.


What do you think?

View comments

Recommended for you

Upcoming Event

Sep 13


Women Adviser Summit - Denver

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video


Retirement: it's no longer about feeding pigeons from a park bench.

Today's retiree's expect so much from retirement than previous generations and advisers are in prime position to help their clients what's important and what's not.

Latest news & opinion

CFA Institute adding crypto, blockchain to curriculum

Subjects will be added to its Level I and II coursework for the first time next year.

Trump tax plan making dividend ETFs hot

Funds that are seeing inflows largely steer clear of sectors like utilities.

Wells Fargo Advisors continues to see a decline in brokers

Company also set aside $114 million over fees for rich clients.

Morningstar to replace funds in its managed portfolios with nine of its own

New sub-advised funds, offered exclusively through financial advisers, are intended to lower costs and provide 'greater flexibility.'

Average client assets top $2 million for first time

Charles Schwab's latest RIA Benchmarking Study reports organic growth is driving increased AUM and revenues.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print