House approves bill to lift restrictions on brokers' ETF research reports

The House has overwhelmingly approved legislation that would enable brokers to publish research reports about exchange traded funds. The chamber passed the bill, the Fair Access to Investment Research Act, 405-2, Monday night in a fast-track procedure for legislation that has strong bipartisan support. The measure would direct the Securities and Exchange Commission to allow brokers to produce analyses of ETFs without the reports being considered a sales offer. A similar safe harbor is already provided for other investment products, such as stocks, corporate debt, closed-end funds and emerging growth companies. The bill's author, Rep. French Hill, R-Ark., said the rapid growth of the ETF market, which now encompasses approximately 1,500 funds with $2.1 trillion in assets, means that brokers need more latitude in disseminating information about them. "Because ETFs are continuously brought to the market, a safe harbor is necessary for broker-dealers to publish this research," Mr. Hill, a former financial adviser, said on the House floor. "Providing this safe harbor will increase access to investment information for consumers and improve the efficiency of our markets." Brokers would be better able to discuss with their clients an ETF's characteristics, such as strategy, transaction costs and use of leverage, and how it works in a portfolio. "All these kind of details will help our consumers know more about these products," Mr. Hill said. The legislation demonstrates "unbelievable common sense," said Dave Nadig, chief executive of ETF.com. Most brokers would likely provide short summaries of ETFs that explain expense ratios and other features. "More information and analysis is always good for investors," Mr. Nadig said. "There are a lot of investors who lean on their brokers to trade ETFs." This is the second time that the House has given strong backing to the bill. It approved a version last year, 411-6. It did not receive a vote in the Senate and had to be reintroduced this year. The prospects in the Senate are much better this time around. The Senate Banking Committee approved a companion bill by voice vote in March. It's not clear when the full Senate will take up the legislation, but with support on both sides of the aisle, it's the type of bill that Senate Banking Committee Chairman Mike Crapo, R-Idaho, said he is emphasizing to kick off his tenure helming the committee.