SEC ponders creating video to help investors decide between investment adviser and broker

Chairman Jay Clayton has suggested the host on the video would deliver similar information as conveyed on disclosure Form CRS

Aug 10, 2018 @ 1:03 pm

By Mark Schoeff Jr.

One thing Securities and Exchange Commission officials have heard over and over at recent investor roundtables is that the agency's proposal for helping them parse the differences between investment advisers and brokers needs to be improved.

The general reaction to the client relationship summary — or Form CRS — has been that even after reading it, investors are still at a loss about the differing standards of care advisers and brokers must meet, and don't grasp terms such as "fiduciary duty" and "best interest."

One solution SEC chairman Jay Clayton is contemplating is going beyond text. He said the agency could produce a video in which he and SEC staff help investors walk through the choice between an adviser and a broker.

Mr. Clayton talked about the potential video, which would be posted on the agency website, during a July 9 investor roundtable in Miami.

"One of the things that has come out of [the roundtables] is that there are people who are not written-word people," Mr. Clayton said. "We are thinking about doing a series of videos in connection with this."

The host on the video would deliver the information that is intended to be conveyed on Form CRS.

"This is the type of relationship you would have with a broker-dealer," Mr. Clayton said. "This is the type you would have with an investment adviser. These are some products that have different types of fees."

A couple of the investors at the roundtable reacted enthusiastically to the idea. But Mr. Clayton acknowledged there could be some resistance to the videos.

"Now, the risk I have in doing that is people will say, that is not quite right," Mr. Clayton said. "You know how lawyers are. He didn't get that right. It works this way. But I think I am willing to take that risk, because I think that, you know, you can look it up on your phone while you are going somewhere or go back to it."

During a June 13 investor roundtable in Atlanta, Mr. Clayton thought out loud about other potential areas the video could cover.

"Just kind of designing this on the fly … you could have a click where you say … give us some examples of how they make their money," Mr. Clayton said. "Because the question I have always asked for 25 years of doing this is whether it's a small deal or a huge deal is, you know, what's happening with the money? If you know what is happening with the money, you have a pretty good idea of people's incentives."

The transcripts for five of the roundtables are now posted on the SEC website. Mr. Clayton attended several of the sessions and reiterated that the agency wants to help investors make a "good, informed choice" about whether to use an adviser or a broker.

The SEC proposal keeps adviser and broker regulations separate, but also seeks to raise the bar for brokers by requiring them to act in the best interests of their clients. Investment advisers already are held to a fiduciary standard that requires a best-interest standard of care.

But Mr. Clayton pointed out in the Washington roundtable that investors should not take complete comfort in the term "fiduciary."

"So when you guys hear, 'I'm a fiduciary, everything's fine,' hold your wallet," Mr. Clayton said.


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