Clayton Calls for End to Sales Contests

The Chairman of the Securities and Exchange Commission (SEC) has just finished a series of “Main Street” roundtables – here’s what he learned.

In a public statement on the investor roundtables organized by the SEC shortly after issuing their Regulation Best Interest and fiduciary proposal in April, Chairman Jay Clayton noted that these gave “Main Street investors from around the country the opportunity to “Tell Us” about their experiences and their views of what they expect from their investment professionals.” He noted that Main Street investors…

  • Have “no tolerance for certain questionable sales practices such as high-pressure, product-based sales contests.” Clayton comments that “in these circumstances, I do not believe it is possible for an investment professional to say with credibility that the investment professional is not putting his or her own interests ahead of the interests of the customer. I believe—and it is clear to me that Main Street investors believe—that these practices should be eliminated.”
  • “Particularly those who appreciate the distinctions between the broker-dealer relationship model and the investment adviser relationship model” – want to be able to choose between a brokerage account, an investment advisory relationship, or in some cases both.
  • Don’t understand the “key differences” between broker-dealers and investment advisers – and this is a problem[i]. “If you do not know (1) the scope of services your investment professional is providing and the related obligations, (2) the fees you are paying and (3) how the professional is compensated, your ability to ask good questions and make good choices is limited.”
  • “Have urged us to limit or eliminate legalese, otherwise the summary (the relationship summary outlined in the SEC’s April proposal) will not be read.” Apparently participants at the roundtables have also suggested a “short educational video geared toward Main Street investors that discusses the key aspects of a relationship with an investment professional.” Clayton says the SEC intends to prepare this video.
  • Do not want jargon from their investment professional or from the SEC. Clayton says what he suggests that Main Street investors ask their financial professionals is: “how much of my money is going to work for me?” He says this highlights “important considerations such as expenses, fees and commissions, and provides a basis for comparing investment professionals as well as specific investment recommendations.”

[i] Clayton notes that the SEC’s proposed rules “are intended to address this confusion head-on by mandating a customer relationship summary that would highlight the services offered, the legal standards of conduct that apply, the fees a customer might pay and conflicts of interest that may exist”.

Post a Comment

Your email is never published nor shared. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Send this to a friend