Democrats back legislation to require investor-testing of SEC advice rule

Republicans assert bill would simply delay the new rule

Mar 27, 2019 @ 5:15 pm

By Mark Schoeff Jr.

House Democrats backed legislation Wednesday that would require the Securities and Exchange Commission to make sure its new advice rule gives investors the information they need to make an informed decision when hiring a financial adviser.

Under the legislation, the SEC Disclosure Effectiveness Testing Act, the SEC would have to conduct usability testing of new disclosures and review existing disclosures.

The bill in part targets the so-called client relationship summary, or Form CRS, that is part of the SEC's investment advice reform proposal. The draft disclosure document has been heavily criticized for being vague and opaque.

Republicans asserted the measure is meant to slow down the SEC's investment advice reform proposal.

The bill is designed to ensure clear, concise disclosures to help Main Street investors make informed decisions, its author, Rep. Sean Casten, D-Ill., said at a meeting of the House Financial Services Committee.

The panel had not voted on the bill by late Wednesday afternoon, but it was likely headed toward party-line approval by the Democratic majority. The bill would then head to the House floor.

The SEC has conducted investor testing of Form CRS, including an online survey of 1,800 individuals and 31 qualitative in-depth interviews. Those tests showed that investors failed to grasp disclosures meant to help them decide whether to hire an investment adviser or broker.

The legislation "would build on the SEC's investor testing of Form CRS and require it to retest any substantive changes that have a significant impact on investors," said Financial Services Committee chairwoman Maxine Waters, D-Calif.

But panel Republicans said the bill would throw a monkey wrench into the SEC's rulemaking process for investment advice reform. The agency is expected to issue a final regulation this summer.

The highest-ranking Republican on the committee, Rep. Patrick McHenry, R-N.C., said that SEC's testing of Form CRS has been sufficient.

"The work's been done on these important matters … and to pass this bill is to put further harm on everyday investors by delaying these rules," Mr. McHenry said.

Democrats have opposed the centerpiece of the SEC's proposal, the so-called Regulation Best Interest. They say it would not raise the broker advice standard.

"This bill, instead of furthering investor protection, is really an attack on the SEC's rulemaking on Reg BI," said Rep. Bill Huizenga, R-Mich.

Mr. Casten said he is trying to improve retail-investor disclosures rather than throw a political roadblock in front of the SEC proposal.

"The intent here is not to delay the process," Mr. Casten said. "The important thing here is to do it right and provide retail investors with the information they need. It is clear there is more work to be done, and that is why this bill is so important."


What do you think?

View comments

Most watched


Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.


Young professionals see lots of opportunity to reinvent the advice experience

Members of the 2019 InvestmentNews class of 40 Under 40 have strategies to overcome the challenges of being young in a mature industry.

Latest news & opinion

InvestmentNews' 2019 class of 40 Under 40

Our 40 Under 40 project, now in its sixth year, highlights young talent in the financial advice industry. These individuals illustrate the tremendous potential of those coming up in the profession. These stories will surprise, entertain, educate and inspire.

Galvin to propose fiduciary rule for Massachusetts brokers

The secretary of the commonwealth is proposing a fiduciary standard in response to an SEC investment-advice rule he views as too weak.

Summer reading recommendations from financial advisers

Here are some books that will keep you informed and entertained during summer's downtime

4 strategies for Roth conversions

There's never been a better time to do a Roth conversion, and here are several ways to go about it.

Cetera latest to be hit with data breach of personal information

Company is offering clients complimentary, two-year membership to an identity theft protection and credit monitoring service.


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 It'll help us continue to serve you.

Yes, show me how to whitelist

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


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print