SEC advice rule concerns raised by Schwab, AARP

For different reasons, each says client-relationship-summary disclosure is flawed

Jun 12, 2018 @ 5:13 pm

By Mark Schoeff Jr.

Charles Schwab & Co. Inc. and AARP voiced concerns Tuesday about the Securities and Exchange Commission's proposal for new investment adviser and broker disclosures.

Jeff Brown, Schwab senior vice president for legislative and regulatory affairs, said the client relationship summary that is part of the SEC's investment advice reform package is unwieldy.

"They've set up a redundant, overlapping disclosure regime that is going to be a burden," Mr. Brown said in a meeting with reporters at the firm's Washington office. "We think it can be done better than their model."

Under the SEC's proposal, advisers and brokers would have to give prospective clients a so-called Form CRS that would outline their services, fees, potential conflicts of interest and differing standards of care.

Mr. Brown said it's not clear that the Form CRS for brokers dually registered as investment advisers would be effective.

"That's going to be an area I'm pretty certain we would comment on," he said.

AARP, which represents about 38 million Americans in or near retirement, said the disclosure doesn't provide enough information for investors to distinguish between investment advisers and brokers.

David Certner, AARP legislative policy director, said Form CRS neither mentions the fiduciary duty that investment advisers currently owe clients nor defines the best-interest standard that the SEC is proposing for brokers.

"We're concerned that not only will this summary confuse investors, but it may provide them with a false sense of security," he said on a conference call with reporters.

AARP and Schwab both are scheduled to testify Thursday about the SEC proposal at a meeting of the SEC Investor Advisory Committee in Atlanta. Five SEC commissioners will hold an investor town hall in Atlanta the day before, which is likely to focus on the advice reform package.

Other financial firms also will want additional clarifications about Form CRS, according to Lisa Hunt, Schwab executive vice president for business initiatives.

"That disclosure area is a big one," said Ms. Hunt, who also serves as chairwoman of the Securities Industry and Financial Markets Association.

She said SIFMA is preparing a "pretty large comment document," but did not go into detail about areas it will address.

Despite that, Ms. Hunt said the industry was happy the SEC released an advice reform package. It did so in April, and the proposal is open for public comment until Aug. 7.

"By and large, we're thrilled to see it," she said.

The SEC has taken the lead on the issue from the Labor Department, whose fiduciary rule is waning after being struck down by a federal court in March.

During the rulemaking process, the SEC will get no shortage of advice on how to improve the proposal. AARP asserts the regulation must define what "best interest" means for brokers.

(Editorial: Does the SEC really need to define 'best interest'?)

"It's not enough for a [financial] professional to rely on their own opinion," Mr. Certner said. "The professional must assess what a prudent expert would recommend and document their decision-making."

But Mr. Brown said he understands why the SEC didn't explicitly define "best interest."

"Once you define something, then it becomes easier to figure out how not to be engaged in that definition," Mr. Brown said.


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