SEC report sheds light on B-D rule

Because financial advice is provided by many different types of firms and professionals, “it is not surprising that investors fail to distinguish financial service providers along regulatory lines,” according to a study released today by the Securities and Exchange Commission. The study, undertaken by the RAND Corporation of Santa Monica, Calif., that looks at services provided by investment advisers and broker-dealers, is to be published in final form next March, but a pre-publication copy was made available to the public today. The study was undertaken after a controversial SEC rule exempting brokers from registering as advisers in some circumstances was overturned last year by the U.S. Court of Appeals for the District of Columbia Circuit. The report makes no policy recommendations, but rather examines investor perspectives of the services provided by advisers and brokers. Many investors and other “interested parties” found that disclosures that both advisers and broker-dealer firms are required to provide “are problematic,” the study said. “They are not written in a way that is easily understandable to the average investor, and the information they provide is inadequate,” the study said. Further, “the financial service provider does not do enough to help investors understand disclosures,” and “investors do not take the necessary time and effort to fully read and understand disclosures,” the study said. However, despite confusion about titles and duties even among experienced investors, most of the 654 households surveyed are happy with their own financial service provider, the study said. “Some of the confusion appears related to the broad range of customer choice,” said Ira Hammerman, general counsel of the Securities Industry and Financial Markets Association of New York and Washington in a statement. “Any efforts to reduce confusion must ensure we don’t diminish customer choice.” The Financial Planning Association of Denver, which successfully challenged the SEC’s broker-exemption rule, will review the report, said Dan Barry, director of government relations in FPA’s Washington office. “We’re hoping it will be a useful tool to inform policy decisions relating to broker regulation,” he said. Read the full study.