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Public Comments from Retail Investors and Other Interested Parties on Standards of Conduct for Investment Advisers and Broker-Dealers

June 1, 2017

The Department of Labor recently stated that the applicability date for what is commonly referred to as the "Fiduciary Rule" would be June 9, 2017.[1]  The Department also stated that it intended to issue a Request for Information regarding various aspects of its Fiduciary Rule.[2]  In connection with these actions, Secretary Acosta stated his desire that the Department of Labor and the Securities and Exchange Commission ("SEC" or "Commission") engage constructively as we each pursue our ongoing analyses of the standards of conduct applicable to investment advisers and broker-dealers when they provide investment advice to retail investors.[3]

The Department of Labor's Fiduciary Rule may have significant effects on retail investors and entities regulated by the SEC.  It also may have broader effects on our capital markets.  Many of these matters fall within the SEC's mission of protecting investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation.

I welcome the Department of Labor's invitation to engage constructively as the Commission moves forward with its examination of the standards of conduct applicable to investment advisers and broker-dealers, and related matters.  I believe clarity and consistency — and, in areas overseen by more than one regulatory body, coordination — are key elements of effective oversight and regulation.  We should have these elements in mind as we strive to best serve the interests of our nation's retail investors in this important area.

I look forward to working with my fellow Commissioners, the SEC staff, retail investors, and other market participants in assessing these matters, as well as the range of potential Commission actions and their expected effects.  Given the significance of these issues — in particular, for retail investors looking to save for the things that matter most to them, including homeownership, education, and retirement — I look forward to robust, substantive input that will advance and inform the SEC's assessment of possible future actions.

The SEC has been reviewing this area for some time, including through the RAND study of investor perspectives commissioned in 2006,[4] the Dodd-Frank Act Section 913 staff study conducted in 2010-2011,[5] and, most recently, a solicitation of data and other information in 2013.[6]  These efforts illustrate the complexity of the issues as well as the fast-changing nature of our markets, including the evolving manner in which investment advice is delivered.  The range of potential actions previously suggested to the Commission is also broad, from maintaining the existing regulatory structure, to requiring enhanced disclosures intended to mitigate reported investor confusion, to the development of a best interests standard of conduct for broker-dealers, and, finally, to pursuing a single standard of conduct combined with a harmonization of other rules and regulations applicable to both investment advisers and broker-dealers when they provide advice to retail investors — and a variety of points in-between.

Significant developments in the marketplace since the Commission last solicited information from the public in 2013 include financial innovations, changes to investment adviser and broker-dealer business models, and regulatory developments — including the issuance and pending applicability of the Department of Labor's Fiduciary Rule.  In light of these developments, I believe an updated assessment of the current regulatory framework, the current state of the market for retail investment advice, and market trends is important to the Commission's ability to evaluate the range of potential regulatory actions.

To facilitate that assessment, and consistent with prior practice followed in other areas of importance to the public and the Commission, including with respect to regulatory initiatives under the Dodd-Frank Act and under the JOBS Act,[7] a webform and e-mail box are now available for members of the public to make their views on these issues known publicly in advance of any future Commission action.  In this regard, public views on the following questions, as well as other information the public believes to be relevant to these issues and the Commission's consideration of potential future actions, are welcome:

  • Retail investors have expressed confusion about the type of professional or firm that is providing them with investment advice, and the standards of conduct applicable to different types of relationships.  To what extent has this reported confusion been addressed?  If meaningful confusion remains, is the confusion harming retail investors or resulting in other costs?  If so, what steps should be taken to address this situation?  What disclosures, advertising, or other information do investment advisers and broker-dealers provide to retail investors currently, and how do those contribute to or mitigate any investor confusion?  Are there specific disclosure requirements or other steps the Commission should consider to address any confusion regarding applicable standards?
  • Have potential conflicts of interest related to the provision of investment advice to retail investors in various circumstances been appropriately identified and, if so, have they been appropriately addressed?  Are there particular areas where conflicts are more prevalent, have greater potential for harm, or both?  To what extent are retail investors being, or expected to be, harmed by these conflicts currently and in the future?  For example, do certain types of relationships result in systematically lower net returns or greater degrees of risk in retail investors' portfolios relative to other similarly-situated investors in different relationships?  Are there steps the Commission should take to identify and address these conflicts?  Can they be appropriately addressed through disclosure or other means?  How would any such steps to address potential conflicts of interest benefit retail investors currently and over time?  What costs or other consequences, if any, would retail investors experience as a result of any such steps?  For example, would broker-dealers or investment advisers be expected to withdraw from or limit their offerings or services in certain markets or products?
  • Market developments and advances in technology continue to transform the ways in which retail investors obtain advice (e.g., robo-advisers, fintech).  How do retail investors perceive the duties that apply when investment advice is provided in new ways, or by new market entrants?  Is this perception out of step with the actual obligations of these entities and, if so, in what ways?  How should these market developments and advances in technology affect the Commission's consideration of potential future actions?  What steps should the Commission take, if any, to address potential confusion or lack of information in these emerging areas?
  • Is there a trend in the provision of retail investment advice toward a fee-based advisory model and away from a commission-based brokerage model?  To what extent has any observed trend been driven by retail investor demand, dependability of fee-based income streams, regulations, or other factors?  To what extent is any observed trend expected to continue, and what factors are expected to drive the trend in the future?  How has any observed trend impacted the availability, quality, or cost of investment advice, as well as the availability, quality, or cost of other investment products and services, for retail investors?  Does any such trend raise new risks for retail investors?  If so, how should these risks affect the Commission's consideration of potential future action?
  • Although the applicability date of the Department of Labor's Fiduciary Rule has not yet passed, efforts to comply with the rule are reportedly underway.  What has been the experience of retail investors and market participants thus far in connection with the implementation of the Fiduciary Rule?  How should these experiences inform the Commission's analysis?  Are there other ways in which the Commission should take into account the Department of Labor's Fiduciary Rule in any potential actions relating to the standards of conduct for retail investment advice?
  • As of the applicability date of the Fiduciary Rule, there will be different standards of conduct for accounts subject to the Department of Labor's rule and those that are not, as well as existing differences between standards of conduct applicable to broker-dealers and those applicable to investment advisers when providing investment advice.  What are the benefits and costs of having multiple standards of conduct?
  • Are there particular segments of the market (e.g., smaller and regional broker-dealers and investment advisers, or smaller investor accounts) to which the Commission should pay particular attention in considering potential future actions?
  • If the Commission were to proceed with a disclosure-based approach to potential regulatory action, what should that be?  If the Commission were to proceed with a standards-of-conduct-based approach to potential regulatory action, what should that be?  Should the standards for investment advisers and broker-dealers be the same or different?  Why?
  • How would any such suggested approach (disclosure, conduct standards, etc.) be implemented?  Specifically, what initial steps would need to be taken to conform to the new rules, and what ongoing processes (e.g., policies and procedures) would need to be put into place to promote compliance and oversight?  Would the Commission need to provide additional regulatory guidance or rules?  If so, what should those be and why would it be important for the Commission to provide those?  Should the Commission address related disclosures or engage in other regulatory improvements in conjunction with any future action with respect to standards of conduct (e.g., adopt enhanced standards for performance disclosures)?
  • Should the Commission consider acting incrementally, taking into account the effects of its initial action before considering further proposed actions?  What are the benefits and costs of such an approach?
  • If the Commission were to impose new requirements, should private remedies be available for violations of any new requirements?  If so, in what venue or venues should such claims be brought?  Should the Commission establish uniform rules, or should parties determine available remedies by contract, so long as not inconsistent with the securities laws?
  • To what extent, if any, can changes in technology enhance the effectiveness and efficiency of regulatory action?
  • For purposes of Commission action in this area, if any, who should be considered to be "retail investors"?
  • For purposes of Commission action in this area, if any, how should "investment advice" be defined?  Should certain activities be expressly excluded from the definition of "investment advice"?
  • What are the expected benefits, costs, or other economic effects, whether direct or indirect, of the potential approaches that the Commission could consider in this area, on retail investors, market participants, and on the market for investment advice more generally?  To what extent, if any, would the investment opportunities and choices available to retail investors be affected?
  • Where does the U.S. stand in this area relative to other jurisdictions and should the approaches of other jurisdictions inform our analysis?  Have any regulatory developments occurred in non-U.S. jurisdictions over the past years that you believe have impacted the market for retail investment advice in those jurisdictions in a manner that would be instructive to our consideration?  Are there any related studies or analyses that demonstrate the impact of these reforms on the market for retail investment advice?
  • As described above, the Commission in 2013 issued a comprehensive solicitation of data and other information, including about the then-current market for personalized investment advice, and about the potential effects of a Commission-mandated single standard of conduct for investment advisers and broker-dealers (e.g., following Section 913 of the Dodd-Frank Act).[8]  In that release, the Commission used a series of assumptions that, while not indicating a chosen direction with respect to key issues, was intended to narrow and focus comment.  For example, the Commission's assumptions included that broker-dealers could continue to receive commissions and engage in principal trades with their customers; that any conduct standard would apply at the point of sale and not impose a continuing duty; and that prior guidance and precedent applicable to investment advisers would be tailored to broker-dealers in a manner that reflects the difference in their engagement with customers.  The Commission also sought information about private claims against investment advisers and broker-dealers by retail investors.  Are there any material changes to the assumptions that the Commission laid out in that request for comment, the requested data and other information, or any other developments that you believe the Commission should consider in its continued review and analysis of these issues?[9]

In addition to specific suggestions for any potential action, I invite you to submit data and other information that may inform the Commission's analysis, including data covering periods since the Commission's 2013 solicitation.

Members of the public interested in making their views known on these or other related matters, even before official comment periods may be opened, are invited to submit those views via the webform or e-mail address linked below.  To the extent that you are responding to a particular question(s) above, please identify such question(s) in your submission.  Members of the public who wish to submit comments on any future rulemaking should submit comments during the official comment period, if applicable, that would start with the notice of the initiative published in the Federal Register.

The Commission will post submissions on the Commission's Internet website.  Submissions received will be posted without change; the Commission does not edit personal identifying information from submissions.  You should only make submissions that you wish to make available publicly.  Because of this, if you have confidential data or other information on any of the subjects above that you wish to share with the Commission, you should submit that information in an aggregated or similarly anonymized format.

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[1] The Fiduciary Rule comprises a final rule (Department of Labor, Definition of the Term "Fiduciary"; Conflict of Interest Rule — Retirement Investment Advice, 81 FR 20946 (Apr. 8, 2016)) and various prohibited transaction exemptions newly adopted or amended at the same time.  On May 22, 2017 the Department of Labor and the Department of the Treasury issued formal non-enforcement policy statements regarding the Fiduciary Rule.  Department of Labor, Field Assistance Bulletin No. 2017-02, Temporary Enforcement Policy on Fiduciary Duty Rule (May 22, 2017); Department of the Treasury, Announcement 2017-4, Non-Applicability of Excise Taxes Under Section 4975 To Conform With DOL Temporary Enforcement Policy on Fiduciary Duty Rule (May 22, 2017).  The Department of Labor also issued a guidance document to provide compliance assistance to affected parties.  Department of Labor, Conflict of Interest FAQs (Transition Period) (May 2017).

[2] See Field Assistance Bulletin No. 2017-02, supra note 1.

[3] Alexander Acosta, Deregulators Must Follow the Law, So Regulators Will Too, Wall St. J. (May 23, 2017), at A19.

[4] Angela A. Hung, et al., RAND Institute for Civil Justice, Investor and Industry Perspectives on Investment Advisers and Broker-Dealers (2008).

[5] Staff of the U.S. Securities and Exchange Commission, Study on Investment Advisers and Broker-Dealers As Required by Section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Jan. 2011) (the "Study").  The views expressed in the Study were those of the staff and do not necessarily reflect the views of the Commission or the individual Commissioners.  See also Statement by SEC Commissioners Kathleen L. Casey and Troy A. Paredes (Jan. 21, 2011) (opposing the Study's findings and, among other things, stating that "stronger analytical and empirical foundation than provided by the Study is required before regulatory steps are taken that would revamp how broker-dealers and investment advisers are regulated").

[6] Rel. No. 34-69013, Duties of Brokers, Dealers, and Investment Advisers (Mar. 1, 2013), available at

[7] See Public Comments on SEC Regulatory Initiatives Under the JOBS Act, at; Public Comments on SEC Regulatory Initiatives Under the Dodd-Frank Act, at

[8] See supra note 6.

[9] Public comments received in response to Rel. No. 34-69013, supra note 6, will also be considered in connection with any rulemaking under Section 913 of the Dodd-Frank Act.

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