Elevating the concerns of smaller retail investors and others overlooked by the markets is the goal of a Securities and Exchange Commission advisory group that began its work Tuesday.
“I hope … we will, in fact, bring voices to the commission that otherwise aren't heard … to enrich the debate,” Joseph Dear, chief investment officer at the California Public Employees' Retirement System, said at the inaugural meeting of the
SEC Investor Advisory Committee.
Created by the Dodd-Frank financial reform law, the panel replaces the previous advisory committee. The 21-member group, comprising investment professionals and investor advocates, is designed to provide guidance to the SEC on investor protection, including the regulation of securities products, trading strategies, fee structures and disclosure rules. Mr. Dear will serve as chair of the committee. Craig Goettsch, securities counsel and director of investor education and consumer outreach for the Iowa Insurance Division Bureau of Securities, is vice chair.
SEC Commissioner
Luis Aguilar urged the committee to focus its attention on retail investors, who he said lack confidence in the financial markets and increasingly feel that Wall Street is “rigged against” them.
“The participation of retail investors in our capital markets is crucial to our country's economic success,” Mr. Aguilar said in his opening remarks.
“Yet — by contrast to many other groups that interact with the commission — most individual investors lack the time and resources to mobilize in support of policy position, participate in meetings with commissioners and SEC staff, and make their needs known,” he said. “Accordingly, I urge the IAC to put individual retail investors foremost in its considerations.”
That view that the committee should be a proxy for small investors was echoed by several committee members.
“Capital markets, for many, have let them down,” said Steven Wallman, chief executive of Foliofn Inc. “A group like this can make recommendations that, if adopted, can help restore confidence.”
The panel's perspective should range beyond small investors and include low-income Americans, including single mothers and elderly people, who have been “hardest hit by financial hard times,” said Eugene Duffy, a partner and principal at Paradigm Asset Management Co. LLC.
“This mosaic that we call America … has yet to use all of its potential to create economic justice,” Mr. Duffy said.
The committee also can offer the SEC a view of regulation that it doesn't hear from “a very powerful commercial lobby” for Wall Street firms, said Kurt Schacht, managing director of the CFA Institute.
“This will be a very important counterbalance to that,” he said.
It isn't clear how much influence the group will have on an issue such as the standard of care for investors. Under the Dodd-Frank law, the SEC has the authority to promulgate a rule that would impose universal fiduciary duty for retail investment advice, subjecting brokers to the same requirement that advisers must meet.
The SEC hasn't moved forward on a fiduciary duty rule in the year-and-a-half since it sent a report to Congress endorsing one. The SEC has said that it will first conduct a cost-benefit analysis on the potential regulatory impact.
The Investor Advisory Committee can't tell the SEC what to do, but the commission will have to issue a formal response to the panel's recommendations.
“It won't ensure an outcome,” said Barbara Roper, director of investor protection at the Consumer Federation of America, a committee member. “But it can require the commission to formally focus its attention on an issue.”
