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."
