SEC task force targets retail investor fraud at the adviser level

New division will go after problems such as fee disclosure and unsuitable products

Oct 26, 2017 @ 2:41 pm

By Mark Schoeff Jr.

A new Securities and Exchange Commission enforcement initiative will target retail investor harm that occurs when clients work with investment advisers, an SEC official said on Thursday.

Stephanie Avakian, co-director of the SEC Division of Enforcement, said that the agency's retail strategy task force will use data analytics to find widespread problems involving inadequate fee disclosure and unsuitable product recommendations. It will parse data about products, types of fees and investors, advisory office locations and sales practices. In addition to market data, it will draw on the thousands of tips, complaints and referrals that come into the SEC as well as findings from adviser examinations.

"The goal of the task force is to find the problems [and] think creatively about potential solutions," Ms. Avakian said at the Securities Enforcement Forum in Washington.

Established in late September, the retail task force won't pursue cases itself but will advise its enforcement colleagues about where to focus their efforts.

Ms. Avakian said that areas of increasing concern include the sales of high-fee mutual fund share classes when less expensive share classes are available for the same fund, lack of transparency in wrap-fee programs, situations where investors hold inverse exchange-traded funds for the long term, non-disclosure of fees and churning and excessive trading.

"We'll look to [the task force] to consider these issues broadly, to look for opportunities to send effective messages in a way that maximizes our efficiency and preserves our resources," Ms. Avakian said.

It's too early to tell when the first cases arising from the task force's work will emerge, she said in an interview on the sidelines of the conference. The group is still hiring its staff. But it intends to swing into action quickly.

"I would expect investigations to start in fairly short order," she said.

In speeches and appearances on Capitol Hill, SEC Chairman Jay Clayton has said that he is surprised about the amount of retail investor fraud that continues to occur and that cracking down on it is one of his priorities.

Ms. Avakian said that emphasizing retail enforcement won't detract from the SEC's efforts on other kinds of financial fraud or "policing Wall Street."

"The premise that there is a tradeoff between Wall Street and Main Street enforcement is a false one," she said.

At the same time that the SEC established the retail task force, it also launched a cyber unit that will target online threats to investors and financial firms.


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