After a report found that fee disclosures lost their effectiveness when hidden in small print and lengthy documents, a new group of regulators and broker-dealer firms is joining together to develop an easy-to-read model fee disclosure for customers.
The North American Securities Administrators Association on Thursday announced the formation of the working group of regulators and trade organizations, which will combat inconsistencies in how broker-dealers disclose fees.
NASAA's announcement comes as a response to its
April report, which found brokers are burying disclosures and sometimes charging customers unreasonable fees.
The report found that broker-dealers complied with the technical requirements governing fee disclosures, but NASAA concluded that the disclosures had little meaning for clients when hidden in overly complicated documents. Fee disclosures ranged between one paragraph and seven pages, for example, and they were sometimes embedded in a document totaling anywhere from one page to 45 pages.
The working group comprises state securities regulators and representatives of the NASAA Broker-Dealer Section, the
Financial Industry Regulatory Authority Inc., the Securities Industry and Financial Markets Association and the Financial Services Institute. Also joining the working group are wirehouses
Bank of America Merrill Lynch and
Wells Fargo Advisors, and broker-dealers
LPL Financial,
Edward Jones, Prospera Financial Services and Signator Investments Inc.
NASAA president Andrea Seidt said the working group will develop a model fee disclosure that is simple to read, easy to find and readily available for consumers. Disclosures by wirehouses, independent broker-dealers, clearing firms and introducing firms will all be considered, she said.
Ms. Seidt said the working group's goal will be to help consumers make apple-to-apple comparisons when shopping for broker-dealers. The group won't be focused on specific investment products, she said, adding that the group may agree on best practices for firms, or the regulators may agree that there should be a rule on fee disclosure.
“The quickest and most effective way to resolve issues that have a big regulatory and industry impact is to get all of those stakeholders around the same table. With the survey, you could tell that there was a big disparity in how fees were disclosed,” she said.
In considering a model fee disclosure form, the working group will look at accessibility and transparency guidelines, uniform terminology for fees and recommendations on how to notify customers of fee changes, according to a NASAA statement.
NASAA's April report, which
surveyed a collection of fee data from 34 broker-dealers starting in 2012, included a recommendation that a working group be formed.
Bob Webster, NASAA's director of communications, said the working group plans to hold its first meeting after NASAA's annual conference next week.
