The mission of the Securities and Exchange Commission is to protect investors, and maintain fair, orderly and efficient markets.
The industry watchdog proclaims that “all investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it and so long as they hold it.”
So why is the SEC taking such a long time to evaluate a rule change for point-of-sale disclosure?
As reported in InvestmentNews last week by senior editor Dan Jamieson, the SEC has been mulling a rule change since 2004 that would require broker-dealers to disclose whether they operate shelf space programs, which give preferential treatment to fund companies in return for a fee.
The SEC needs to stop dragging its feet and get an updated proposal in place that will require broker-dealers to disclose this meaningful financial information to the public.
When questioned by Mr. Jamieson about where the SEC was on proposed point-of-sale rule changes, SEC spokesman John Nester said, “We have no fixed timetable. We are still evaluating what we learned through testing and the comment process.”
The SEC reopened the comment period on proposed point-of-sale rule changes in January 2004.
At that time, plans were in place that would require broker-dealers to provide their customers with information regarding the costs and conflicts of interest that arise from the distribution of mutual fund shares, Section 529 college savings plan interests and variable insurance products.
Additionally, in May 2005, the SEC conducted investor interviews to test and refine point-of-sale disclosure forms.
During the interviews with the SEC, investors were asked to comment on the various disclosure documents to cite usefulness, to assess their importance to investment decisions and to provide suggestions for improvement.
The question that begs to be asked is: What happened to all of those data?
Armed with this type of essential feedback from investors and comments from those in the industry, one has to wonder why it is taking the SEC so long to act on this rule change proposal.
The federal agency outlined its goals for the fiscal year 2006 in a performance budget that called for it to revisit point-of-sale disclosure for broker-sold mutual funds and other investment products.
A year and a half later, the SEC still is evaluating its next move.
It’s obviously time for action.
Broker-dealers need to understand that strong rules are in place and that the industry watchdog will nail them for favoring the sale of shares of particular funds on the basis of brokerage commissions received by the firm.
The regulator needs to show the industry and investors that it is committed to ensuring that firms obey the rules governing the marketing and sale of investment products.
The SEC needs to reaffirm its total support for a clear, efficient and cost-effective disclosure of information in an effort to prove to investors that they are the priority.
The regulator needs to move forward and look at investment product disclosure to determine whether investors actually are getting the information they need when they need it most — at the time of purchase.
What’s more, investors need the information in a way they can truly understand.
The financial services industry owes investors a far more streamlined and effective set of disclosure rules than are in place today.
The bottom line is that point-of-sale disclosure is good for the American investor and good for the financial services industry.
