The complex nature of investments leaves many retail investors needing assistance from investment professionals to help navigate the endless possible investment opportunities available to them.
To satisfy investor needs, many investment professionals associate with broker-dealers, investment advisers, insurance agencies and others so that they can offer a diverse number of products and services to their clients. However, retail investors report a great deal of confusion regarding the differences between broker-dealers and investment advisers, including:
- Terms of services;
- Fees charged;
- Standards of care; and
- Obligations to their client investors.
To provide more clarity and transparency to retail investors so they are equipped to make informed decisions about working with an investment professional, the U.S. Securities and Exchange Commission ("SEC") produced a Sample Relationship Summary in April 2018, and has continue to gather feedback since that time.
Putting the Sample Relationship Summary to the Test
In an early-November Press Release, the Securities and Exchange Commission's Office of the Investor Advocate made public a report on investor testing conducted by the RAND Corporation that gathered feedback from 1,800 investors on the Sample Relationship Summary.
The survey found a mostly positive reaction to the Summary, with approximately 90 percent of respondents saying the resource would assist them in selecting investment accounts and services.
The Summary Found Mostly Successful
The aforementioned survey reveals a number of beneficial aspects of the Summary for investors, including:
- Heightened understanding of key terms and conflicts of interest;
- Providing a basis for conversation with an investment professional;
- Side-by-side comparisons that can assist investors when selecting or deciding between a broker-dealer and an investment adviser; and
- Important information on fees and costs (which was reported to be one of the biggest factors to help investors).
The Relationship Summary was found to be accessible and understandable, with most respondents indicating that as an investor, they would actually read the document.
Some Shortcomings in the Summary Revealed
Certain aspects of the Summary were reported as needing improvement, including:
- Confusion regarding key differences between types of accounts or financial professionals; and
- Difficulty understanding the "Our Obligations to You" section and the "conflicts of interest" section.
Although feedback seems positive overall, individuals with less education or less investment experience were less positive than those having more education or investment experience.
The Relationship Summary: Get Involved in the Process and Consider Your Disclosures to Investors
The Office of Investor Advocate is making the information available for public consideration and comment.
Based on the foregoing, we encourage all financial professionals to take the following actions:
- Get involved in the process of shaping the direction of our industry going forward by reviewing the Summary and offering feedback through the channels mentioned above.
- Take this opportunity to think about how you can best communicate and disclose your role and responsibilities to your clients, carefully considering how you define your relationship when speaking with a prospective client so that everyone is on the same page from the very beginning.
The experienced attorneys at Jacko Law Group, PC, are ready to help with customizing this disclosure for you and can assist with your corporate and securities law legal needs. If you have any questions about the Proposed Relationship Summary, or if you need guidance on how to better communicate aspects of a broker-dealer or investment advisory client relationship, contact us for assistance - click here.
- Managing Partner and CEO
Michelle L. Jacko, Esq. is the Managing Partner and CEO of Jacko Law Group, PC, which offers corporate and securities legal services to broker-dealers, investment advisers, investment companies, hedge/private funds and ...
Add a comment
- SEC Requests Proposals to Innovate Markets for Thinly Traded Securities
- PricewaterhouseCoopers LLP pays $7.9 to settle SEC Improper Professional Conduct, Auditor Independence Charges
- HCR Advisors Settles SEC Charges on Failure to Supervise and Implement Compliance-Related Policies and Procedures
- Amadeus Wealth Advisors, Three Bridge Wealth Advisors Settle SEC Unlawful Proxy Charges
- Charging Fees for Inactive Accounts can be as Problematic as Churning
- SEC: Prudential Failed to Disclose Conflicts of Interest to Fund Boards
- SEC Charges Investment Bank Junior Analyst with Insider Trading
- SEC Files Charges in Fraudulent Token Manipulation Scheme
- OCIE Risk Alert: Guidance for Compliance, Supervisory and Disclosure Procedures
- Jury Returns Verdict for SEC in Case Against Broker Charged with Fraudulent Excessive Trading
- Advisers Act
- Investment Advisers
- Policies and Procedures
- Office of Compliance Inspections and Examinations (OCIE)
- Ponzi Scheme
- Form U5
- Aging Clients
- Due Diligence
- Virtual Currency
- Dodd-Frank Act
- Regulation Best Interest
- Transition Services
- Private Equity
- Private Funds
- Hedge Funds
- Regulatory Examinations
- Personally Identifiable Information (PII)
- Government Shutdown
- Risk Alert
- Social Media Marketing
- Exchange-Traded Funds (ETFs)
- Investment Company Act
- Rule 6c
- Broker Protocol
- Wells Fargo
- Securities and Exchange Commission (SEC)
- Securities Law