I’m attending a conference sponsored by IA Watch: Coping with Regulatory Change. These are my brief notes.
Rick Fleming, Director of the Office of Investor Advocate at the Securities and Exchange Commission, started with a keynote. His office and position was created by Dodd-Frank. He currently has a staff of ten people. (One of the inherent conflicts at the Securities and Exchange Commission is between investor protection and capital formation.) He created the position of Ombudsman for complaints against the SEC itself. Most of the staff is focused on policy issues, including those of the SROs. He hired an economist to focus on the benefits to investors, not just the cost to the industry, for the cost-benefit analysis of proposed regulatory actions.
He reports to Congress twice a year. The statutory mandate prevents the Commissioners from imposing their views on that report.
If the Office is not happy with an action, it can make a formal recommendation and the SEC must respond according to the statute.
Top Priorities for this year:
- High frequency trading
- More effective disclosures to investors
- Variable annuity disclosures
- Accounting and auditing issues
- Millennial investors – how are they different?
- Fiduciary Duty
He thinks there needs to be more exams of investment advisory firms. He recommended an additional fee to pay for more frequent exams. (He came from a state regulator.) However, he is not a fan of SROs and the FINRA model of self-exam. Review of investment advisers is a legitimate government action. He prefers more funding for SEC exams. He does advocate for third party verification of assets. His current idea is the use of consultants for review.
He thinks the SEC will come out with a Fiduciary Duty rule at some point this year, applying a higher duty to brokers who advertise themselves as something other than a broker. His biggest concern is that Dodd-Frank limits the duty when a proprietary product is being sold. That is where he has seen the most problems.