Interest groups split on delaying comments for SEC advice proposals

Consumer, adviser advocates want to see results of investor testing first, but SIFMA says stick with original Aug. 7 deadline

May 31, 2018 @ 4:11 pm

By Mark Schoeff Jr.

A major financial industry organization pushed back on Thursday against an effort by groups representing investors and investment advisers to extend the deadline for public input on the Securities and Exchange Commission's investment-advice reform proposal.

Over the past week, more than two dozen groups have called on the SEC to delay the Aug. 7 deadline for public comment so that it will have more time to test proposed disclosures that would help investors understand the differences between investment advisers and brokers.

The groups are calling on the SEC to announce the outcome of the testing of the so-called client relationship summary (Form CRS) and give them time to digest and incorporate it into their comment letters.

"This whole proposal is designed to ensure investors understand what they're getting," said Karen Barr, CEO of the Investment Adviser Association. "We want to see and comment on their results. We want to help the SEC get it right."

But the Securities Industry and Financial Markets Association said that the Aug. 7 deadline should remain intact.

"SIFMA opposes any delay and will fully respond to the proposal within the comment deadline, including feedback on the Form CRS," Kevin Carroll, SIFMA managing director and associate general counsel, said in a statement. "There is no compelling reason to delay this important investor protection initiative."

The SEC declined to comment on whether it would extend the deadline. It's unclear whether the agency will make the investor testing results public.

The testing is crucial to determining whether Form CRS will be effective, IAA asserts.

"It would be important to know whether the investor understood what the term 'fiduciary' as used in proposed Form CRS means," the IAA wrote in a May 25 letter to the SEC. "Similarly, it would be important to know whether the investor understood what the term 'disciplinary events' may encompass."

The results of the testing will help illuminate the efficacy of the disclosure form as well as another proposal in the SEC proposal package that would require brokers to act in the best interests of their clients, according to a May 21 letter to the SEC signed by 24 investor and adviser advocacy groups.

"We can't judge the regulatory proposal until we know the disclosures work," Barbara Roper, director of investor protection at the Consumer Federation of America, said in an interview. "If vulnerable investors can't make an informed decision, you have to change your regulatory approach."

An expert on investor testing said that the SEC should be able to assemble focus groups, conduct testing and analyze the results before the comment deadline, depending on when the investor testing begins.

"This would have to start at the latest by mid-June," said Brian Perlman, senior vice president at Greenwald & Associates, which previously has conducted disclosure testing for the SEC. "To be safe, I would allow for a six-week process on the research end."

But even if the SEC testing results are published before Aug. 7, it could put organizations under the gun to write what are likely to be long comment letters.

"I think there's a decent possibility we'll get some kind of extension to comment on the testing," Ms. Barr said. "It's a reasonable request."

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