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Statement Concerning Certain IAC Recommendations

June 22, 2023

I am sorry that I will not be able to attend this week’s Investor Advisory Committee (“IAC”) meeting.  I particularly would have liked to hear your discussion about the draft recommendations that you are planning to consider at the meeting.  Each of these recommendations addresses an important topic, but robust discussion should precede finalization of any of these recommendations.  I offer some questions for your consideration.

Draft Recommendation on Registered Investment Adviser Oversight:

Informed by an IAC panel discussion from March 2nd, this recommendation brings attention to the mounting challenges the Commission faces in ensuring adequate oversight of investment advisers.  The Commission’s Division of Examinations is central to our efforts to protect investors and ensure the smooth running of our capital markets.  But resources for this key Division are always stretched thin.  As the IAC highlights, in the last seven years the number of SEC-registered advisers (“RIAs”) has gone up by 25%.  All the while, the Commission’s Examinations staff is only 4% larger than it was seven years ago, and its responsibilities extend beyond investment advisers.[1]

The IAC offers potential solutions to this perpetual problem of adviser ranks outpacing examiner ranks.  The IAC’s draft recommended solutions include user fees[2] and third-party examinations.[3]  I ask the Committee to address the following questions in their consideration of both potential solutions:

  1. How would the user fees be set, and what role would Congress play in setting it?  Untethering this piece of the SEC’s budget from direct congressional appropriation could undermine the SEC’s accountability to Congress.  Political accountability for the agency is key to ensuring that the Commission uses its resources properly.
  2. If instead the third-party option were chosen, would advisers and investors be justified in asking why we are outsourcing a key government function?  Would this approach create a new set of quasi-governmental regulatory organizations?  Given the regulatory origin of the demand for third-party examiners, would advisers have any leverage in fee negotiations with these third parties?  What type of oversight over these third parties would be appropriate?  With the necessity of Examinations’ oversight of these third parties, would we really succeed in shifting much of the burden away from the Commission?  Would the Commission end up losing an important window into what goes on in the industry, as we have by ceding much of our oversight of broker-dealers to FINRA?
  3. Would an approach that relies on user fees or third-party examiners foster bad habits at the Commission?  The SEC recently has exhibited an unhealthy preoccupation with erasing the distinctions between the retail and private markets.  A user fee could exacerbate this trend.
  4. Given the battering the industry is taking courtesy of an unprecedented wave of costly regulations, would the imposition of a user fee or the forced hiring of third-party examiners serve as that one last straw on the back of small advisers?
  5. How would a proposal for third-party examiners interact with the Commission’s recent service providers proposal?[4]

Draft Recommendation on Single Stock ETFs and Leveraged ETFs:

Exchange-traded funds (“ETFs”) are one of the great innovations of the last thirty years.  We finally codified them in a rulemaking in 2019.  Single stock ETFs are a recent phenomenon, one that I did not contemplate when we adopted the ETF rule.  The IAC rightly points out that single stock and leveraged ETFs are quirky products that are definitely not suitable for everyone.  The draft recommendation calls on the Commission to adopt naming conventions for single-stock ETFs and other exchange-traded products to convey their unique features and risks more accurately; bring more enforcement cases for unsuitable recommendations of single stock ETFs and other ETPs; and to “[r]equire broker-dealers to provide a visual point of sale disclosure to contrast the performance of a single stock/leveraged ETF with the underlying asset.”[5]  In discussing these draft recommendations, please consider the following questions:

  1. Is industry already taking steps to provide greater clarity about single-stock ETFs and other products?
  2. Technology can be a powerful investor education tool.  Does the Commission need to make changes to facilitate greater use of technology to ensure that investors understand the products they are buying?
  3. Could a naming convention unduly constrain product development by forcing all products into existing molds?
  4. Would a rulemaking on these topics make sense in light of our already over-packed agenda and the Commission’s ability using existing rules to punish advisers and broker-dealers who fail to operate in their customer’s best interest?
  5. Whatever the Commission does in this space, how can we avoid veering into merit regulation territory?  Used properly, these products could assist some investors in meeting their goals.  We should not stand in the way of investors’ accessing products they want, even if we would not want them ourselves.

Recommendation of the Market Structure Subcommittee of the SEC Investor Advisory Committee on SEC Proposed Amendments to Regulation 13D-G, Proposed Rule 10B-1, and Proposed Rule 9j-1

The draft recommendation with respect to the Commission’s proposals on Rules 13D-G and 10B-1 grapple with difficult questions, as reflected in the Commission’s release earlier this week of additional analysis on Rule 10B-1.  In discussing this draft, I hope the Committee will consider the following questions:

  1. Would shortening the 13D reporting date to 5 business days discourage economic activists? If so, what would the cost be?
  2. Given that security-based swap data repositories have been receiving security-based swap data for less than two years, does it make sense to postpone final action on proposed Rule 10B-1 until we have more experience with the data and a better understanding of what that data can tell us about this market?

[1] IAC “Discussion of a Recommendation on Registered Investment Adviser Oversight,” (June 22, 2023), pp.1-2,

[2] Id. p.4 (suggesting that the Commission should seek congressional authority to “impose ‘user fees’ on SEC-registered investment advisers, the revenue from which could be retained by the SEC to fund and enhance its investment adviser examination program, including more frequent on-site examinations of SEC registered advisers”).

[3] Id. p.5 (calling on the Commission to seek comment on “adopt[ing] a rule requiring advisers to undergo a compliance exam conducted by an outside firm and that a copy of the exam results be submitted to the SEC”).

[4] See Outsourcing by Investment Advisers, Advisers Act Release No. 6176 (Oct. 26, 2022), available at

[5] IAC “Recommendation of the Market Structure Subcommittee of the SEC Investor Advisory Committee on Single Stock ETFs and Leveraged ETFs,” (June 22, 2023) [link unavailable at time of posting]

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