Keynote Address: ICI Securities Law Developments Conference

Washington D.C.


Good morning. Thank you Dorothy [Donohue] for that kind introduction, and thank you for inviting me to speak today. I am pleased and honored to join in a long tradition of Division of Investment Management Directors speaking at this conference.[1]

This week marks my three-month anniversary returning to the Division of Investment Management. I am often asked what it is like, and I can tell you that I have had a remarkable experience so far. Many of you work with the Division’s staff regularly – you know how talented they are. As Director, I am privileged to work every day with a group of folks who are dedicated to the agency’s mission. Every day, they are asking, “how do we make it better for the American investor? How do we provide that investor with investment opportunities so that they can meet their goals?”

Several of my talented colleagues will be on the panels later today. From Investment Management, that includes Daniele Marchesani and Diane Blizzard, who will be joining you from the Chief Counsel’s and rulemaking offices. Those who are not here today are back at the office reviewing disclosures, responding to requests for exemptive relief and thinking about ways to improve choice and opportunity for investors.

I am also honored to join Commissioner Kara Stein as a featured speaker at this conference. In the short time I have been back at the SEC, I have benefited from the opportunity to exchange ideas with Commissioner Stein and Commissioner Piwowar and, of course, Chairman Clayton and their respective staffs, all working toward a singular purpose of promoting a set of rules that works for American investors.

I want to spend most of my time today talking about two initiatives on which the staff is hard at work. The first of these is a fresh look at the investor experience. Investors are flooded with information about funds and advisers, and I believe there are opportunities to make that information work better for them.

The second initiative is aimed at reviewing and reevaluating what we ask fund boards to do. Boards play a critical role for funds, and I believe they serve investors best when they can focus on areas where their judgment and experience uniquely equip them to provide oversight. I am excited about these initiatives because they allow us to think big but with a pretty simple goal – helping funds and advisers serve investors.

I am also excited because these are great opportunities to engage with all of you. Later in my remarks, I will focus briefly on how you can help us and, in general, on how we can all engage with each other effectively.

Before I get started, I am going to pause for a disclaimer. I am speaking today only for myself and not for the Commission, the Commissioners or the staff.[2]

The Investor Experience

I want to talk first about what we are calling the “investor experience” initiative. Investors receive a lot of information about funds and advisers. Prospectuses, shareholder reports, adviser brochures, advertisements, disclosures from intermediaries, reports from analysts, advice from the media – I could go on. All of this information is available, but is it presented in a way that works best for investors? This initiative is about investigating that question.

Our touchstone for this initiative is the basic principle of effective disclosure – disclosure should help investors make informed investment decisions. That means it needs to be clear, digestible and designed to help investors quickly find useful information. The Commission has made progress on this front over the past 20 years – the move to plain English, for example, and the introduction of the summary prospectus, were important steps. Division staff looks at a lot of disclosure, however, and we think there is still room for improvement. That may mean taking another look at the numerous disclosure forms. Perhaps there are opportunities to take advantage of new insights into design and learning. It may also mean reevaluating areas where we see legalese, redundancies and lengthy discussions that are more defensive than informative.

We also cannot ignore that it is the 21st century. As technology improves and our markets evolve, we need, as best as we can, to make sure that our approach to disclosure keeps pace. When I want to know something, I pull out my phone. A new generation that has never known a world without an internet is joining the ranks of investors. They may go through the entire investment process without talking to a person. That is great, but if we want them to make use of our required disclosures, we have a problem – 70-page documents are hard to read on a smartphone. We also have a tremendous opportunity – maybe technology could open the door to more interactive and personalized disclosure. Maybe disclosure could be inviting rather than intimidating.

Changes in our markets make revisiting the investor experience even more pressing. Far more American households invest in funds today than thirty years ago.[3] That means disclosure has to work for a broad base of individuals with varying preferences and investment goals. In addition, as product complexity increases, so does the challenge of making disclosure effective.

My goal with this initiative is engagement. There are a lot of great ideas out there. I want to hear from investors, practitioners, asset management professionals and others about what is working and what is not. How can we promote better disclosure? Should we change the content, the terms of delivery, the design? Are there opportunities to save on cost without losing quality? At this point, our focus is gathering information and ideas, so no idea is too big or too modest to be considered.

Board Outreach Initiative

The second project I want to talk about is the Division’s new “board outreach initiative.” Boards have played an important role in funds at least since 1940.[4] From the beginning, boards have been central to managing the conflicts that may arise between funds and their service providers. To this day, shareholders rely on directors to help ensure that funds are managed in their best interests.

Although the importance of the board has not changed, the list of responsibilities has grown significantly in 77 years. Originally, directors were asked to focus on just those key areas where important conflicts could emerge – advisory and underwriting contracts, valuation and certain accounting and audit roles.[5] Since then, responsibilities have accumulated with the decades.

This did not happen all at once but rather incrementally over the years. New exemptive relief needed oversight – a new duty was added. Someone needed to monitor compliance with a rule – a new duty was added. A no-action letter addressed areas of potential conflict – a new duty was added. As a staff member, I have been there. Knowing that the board is involved can help us get comfortable with innovative arrangements. I can appreciate how these decisions, considered individually, made sense. At some point, however, we (as a staff) need to holistically revisit the responsibilities of the board. We need to ask, does this all make sense put together? Has technology or market practice changed the way board oversight should be framed in areas like valuation? When we pile on responsibilities, are we distracting from the areas where director oversight is most valuable?

This is not the first time the Division has set out to review board responsibilities.[6] Unfortunately, the most recent efforts had to compete with post-crisis policy-making. Even now, our resources are limited – we only have about 180 folks in the Division to oversee an industry with trillions of dollars under management. However, I see an opportunity now to focus our resources on bread and butter projects – to bring us back to the policy ideas that have always been central to the 1940 Act. I have made this board initiative a priority because it is one of those bread and butter projects and it can have a significant impact that ultimately accrues to the benefit of investors.

Where are we now? We have made good progress on cataloging all of the rules, no-action letters and exemptions that impose fund board responsibilities. We are also beginning our outreach and engagement. Funds are diverse – large, small, funds with a single manager, funds with multiple managers – and boards reflect that diversity. We want to understand what directors and other stakeholders are seeing across the spectrum.

The premise here is not that responsibilities should simply be shifted away from the board to somewhere else. Instead, we are asking if funds could benefit from recalibrating the “what” and the “how” of board responsibilities. So, our questions are: Where is board focus most valuable? What does the information flow to directors look like? When do directors feel that they have a meaningful role to play, and when are they overseeing matters more appropriately handled by others? As we gather information, we will be thinking about whether to recommend any recalibration of board duties, and we hope you will do the same.


As I have talked about the Investor Experience and Board Outreach Initiatives, you may have noticed a common theme of engagement. I want to focus on that theme before closing.

Here is where I come from: good policy starts with good information.

There are a lot of sources for information, but some things you just cannot look up. You have to talk with people. If we are talking about the “investor experience,” we better know what investors are experiencing. If we are thinking about board responsibilities, we better talk with directors to understand what living under our requirements looks like. These inputs are critical to our understanding of what is working, what is not and how different solutions may be implemented. In other words – we want to hear from you.

Having spent time both on the staff and thinking about SEC policy from the outside, I have a few thoughts on what makes engagement effective. First, when you are writing a comment letter or coming in for a meeting, please think about involving traders, analysts, compliance officers, operations folks, fund managers and other professionals. I love to debate fine points of law, but many of the most important questions are practical, not legal. I have been in many meetings where the lawyers think we have figured it out only to have a portfolio manager or analyst set us straight. Those insights are incredibly valuable. Second, engagement is most effective when the focus is on solutions. When the Commission puts out a rule, for example, it is trying to achieve something with that policy. We (the staff) really appreciate when you are able to help us spot issues. However, it is even more valuable when you can help identify ways to address those issues while still achieving the Commission’s goal. So, I invite you to engage with us – our door is always open – and I ask you to make that engagement as constructive as possible.


I have focused today on a couple of the Division’s priorities, but we are, of course, working on a range of other matters. For example, in the coming year, we anticipate working with the Commission’s Office of the Chief Accountant to look at valuation. This would focus on identifying recommendations for updates to staff guidance on the valuation of portfolio securities and other assets held by registered investment companies.

We also continue to think about new innovations in asset management. For example, we have seen several filings for registered funds that would hold cryptocurrency. As with any new product, there are questions to ask. For example, would retail investors have sufficient information to consider these products and to understand the risks?[7] When thinking about cryptocurrencies and other blockchain offerings as fund assets, are differences in their features important? How would these funds fit into the existing regulatory scheme? What regulatory structure or structures apply to the market for the underlying instrument? We will be discussing these questions with you as we work through these filings.

I am sure many of you also have questions about what rulemakings may be coming down the pike. For now, I would invite you to look to the regulatory flexibility agenda when published. The agenda will outline the rulemaking initiatives that we realistically expect to accomplish in the time period shown.

On that note, I want to thank you again for the opportunity to be here today. I look forward to speaking with you further as we engage over the coming months.

[1] I would like to thank Angela Mokodean and Kaitlin Bottock for their assistance in preparing these remarks.

[2] The Securities and Exchange Commission (“SEC” or “Commission”) disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This speech expresses the author’s views and does not necessarily reflect those of the Commission, the Commissioners, or other members of the staff.

[3] See Investment Company Institute, 2017 Investment Company Fact Book, 11 and 112 (2017), available at (noting that, for example, the percentage of U.S. households owning mutual funds has increased from 14.7% in 1985 to 43.6% in 2016).

[4] See Division of Investment Management, U.S. Securities and Exchange Commission, Protecting Investors: A Half Century of Investment Company Regulation, 251-2 (1992), available at guidance/icreg50-92.pdf (noting that Congress recognized the conflicts of interest inherent in fund organizations and as a result, required through the Investment Company Act of 1940 (the “Act” or the “1940 Act”) that boards of directors oversee fund operations and police these conflicts). For example, since its enactment, the Act has required board approval of contracts between funds and their advisers and underwriters. See Investment Company Act of 1940, Pub. L. No. 76-768, § 15(c), 54 Stat. 789, 813 (1940) (codified as amended at 15 U.S.C. § 80a-15(c)).

[5] In addition to approving advisory and underwriting contracts, boards were explicitly required to: (1) fair value securities for which market quotations were not available; (2) approve the fund’s auditors; and (3) approve the fund’s principal accounting officer. §§ 2(a)(39)(B), 32(a)(1), 32(b)(1), 54 Stat. at 796, 838-9.

[6] Andrew J. Donohue, Director, Division of Investment Management, U.S. Securities & Exchange Commission, Keynote Address at the Investment Company Directors Conference (Nov. 6, 2007), available at; U.S. Securities & Exchange Commission, The Role of Independent Investment Company Directors: Transcript of the Conference on the Role of Independent Investment Company Directors (Feb. 23-24, 1999), available at; Division of Investment Management, U.S. Securities and Exchange Commission, Protecting Investors: A Half Century of Investment Company Regulation, 251-89 (1992), available at

[7] See, e.g., Randal K. Quarles, Vice Chairman for Supervision, Board of Governors of the Federal Reserve System, Thoughts on Prudent Innovation in the Payment System (Nov. 30, 2017), available at (contrasting characteristics of digital currencies with other payment systems).

Last Reviewed or Updated: Dec. 7, 2017