IAA fears SEC will leave investor testing behind in rush to finalize advice rule

Schwab official agrees chairman Clayton wants to finish reform package soon, but says top regulator will face challenge finding three votes to pass it

Oct 30, 2018 @ 1:40 pm

By Mark Schoeff Jr.

In a rush to complete investment advice reform next year, the Securities and Exchange Commission might not pause to absorb investor testing on a key part of the proposal, according to an adviser advocate.

The SEC included in the package a so-called client relationship summary, or Form CRS, that is designed to help investors understand the differences between investment advisers and brokers — in terms of services, standards of care and costs — so they can make an informed decision on which type of financial professional to use.

The four-page model form included in the advice rule proposal has come under widespread criticism for being confusing. The SEC has said it is conducting investor testing to determine what kind of disclosure would work best for investors.

Advice reform is a top SEC priority, and Karen Barr, president and chief executive of the Investment Adviser Association, predicts the agency will issue a final rule by the middle of next year. She worries the agency will leave investor testing of Form CRS behind.

"In the desire to get this done quickly, they might not wait for rigorous investor testing and really absorb those results," Ms. Barr said Monday during a session at Schwab IMPACT in Washington.

The SEC has shared investor testing it conducted prior to the release of the advice package. It also has conducted several investor roundtables around the country.

"They've gotten sort of informal results from roundtables, but that's not the same as rigorous testing," Ms. Barr said.

The SEC has said it will release results of the Form CRS testing. But just making them public isn't enough, according to Ms. Barr.

"Given how quickly they want to do this, I'm worried they'll post it but not give folks enough time to submit additional comments on it," she said.

Jeff Brown, Schwab head of legislative and regulatory affairs, agreed that SEC chairman Jay Clayton wants to release a final advice rule soon and asserted he is willing to pass it on a 3-2 vote among the five commissioners.

"Chair Clayton wants this done," Mr. Brown said. "He wants it behind them."

An SEC spokesperson declined to comment.

The SEC voted 4-1 to release the proposal in April. The centerpiece is the so-called Regulation Best Interest, which would require brokers to act in the best interest of their clients.

But even commissioners who approved putting it out for comment expressed reservations about the package. Those doubts might still remain.

"He has a struggle within his own building whether he can get enough votes to adopt this rule," Mr. Brown said.

Another complicating factor is that Democratic commissioner Kara Stein must leave the agency by the end of the year. The Trump administration has not nominated her replacement, and Senate Republicans may not be interested in moving it forward because a new Republican commissioner, Elad Roisman, has already been confirmed.

A Democratic nominee "may move slowly in the political process," Mr. Brown said.

The SEC could have only four out of its normal five members as it votes on a final advice regulation.


What do you think?

View comments

Most watched


Finding your edge from Tony Robbins

Guru Tony Robbins has helped a lot of people, but armed with his psychology Financial Advisor Josh Nelson has helped his practice soar.


Finding innovation in your firm

Adam Holt of AssetMap explains how advisers understand they need to grow, but great innovation may be lurking right under your nose.

Latest news & opinion

The growth of factor-based investing

Advisers are making decisions about clients' portfolios by using the same characteristics that govern factor-based ETFs.

Finra makes its list to target hundreds of rogue individuals

The regulator sees patterns in the behavior and disclosures of high-risk brokers.

LTC insurer offering co-pays to blunt soaring premium increases

John Hancock policyholders would get a discount on their premium in return for agreeing to pay a bigger portion of their claims in the future.

Goldman Sachs acquires United Capital

After a payday of $75 million or more, CEO Joe Duran plans to join Goldman in a senior position.

Private equity loves IBDs, but will that last?

Three big acquisitions in less than a year signals renewed life in the formerly beleaguered industry.


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 investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

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


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print