As questions about the Securities and Exchange Commission's new standard of conduct proposal are streaming in, the head of the agency's Investment Management Division tackled a few of them in a Monday speech.
Questions have been posed about the new disclosure form, called the "Relationship Summary," which is designed to educate investors about "whether they are talking to a broker-dealer, an investment advisor, or both and why that matters," said Dalia Blass, head of the SEC's Investment Management Division, at the Practising Law Institute's Investment Management Institute in New York.
Commenters wonder whether the form would really be that helpful to investors and if its design could be improved, Blass said.
Her response: As to the first question, "I do believe a Relationship Summary would serve as a valuable tool for investors," as it would "highlight key differences between broker-dealers and investment advisors, including (1) the principal types of services offered, (2) the legal standards of conduct that apply to each, (3) the fees the customer would pay, and (4) certain conflicts of interest that may exist."
Advisors and broker-dealers, Blass added, "would also need to include relevant questions for investors to ask."
Is there room for improvement? "We want investors, together with consumer groups and the financial professionals who serve them, to help us get it right," Blass said, noting that the agency wants to also hear from experts in financial literacy, information design and marketing.
As to questions about why the "best interest" is not defined in the standard of conduct proposal's Regulation Best Interest, or Reg BI, Blass stated that although the securities regulator has not defined the term "in the proposed rule text, we have defined the contours of the obligation: a broker-dealer cannot put its interests ahead of the retail customer's and must comply with specific disclosure, care and conflict of interest obligations."
As advisors know, she continued, "a principles-based standard can serve Main Street investors well. Again, one size does not fit all — this approach would provide valuable flexibility to recognize how customers vary from each other and how the industry may change over time."
