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U.S. Securities and Exchange Commission

Securities and Exchange Commission Investor Advisory Committee
Minutes of April 11, 2013 Meeting1

The Investor Advisory Committee convened its April 11, 2013 meeting at 10:00 a.m. in the multipurpose room of the Securities and Exchange Commission’s headquarters in Washington, D.C. The meeting lasted until approximately 3:00 p.m. and was open to the public, except for non-public subcommittee meetings. Those attending were:

Commissioners of the Securities and Exchange Commission

Chair Mary Jo White (morning session only)
Commissioner Daniel Gallagher (morning session only)

Advisory Committee Members

Darcy Bradbury
J. Robert Brown, Jr.
Joseph Dear
Roger Ganser
James Glassman
Craig Goettsch
Adam Kanzer
Roy Katzovicz
Barbara Roper
Kurt Schacht
Anne Sheehan
Damon Silvers
Steven Wallman
Ann Yerger

Staff of the Securities and Exchange Commission

Lori J. Schock, Office of Investor Education and Advocacy
M. Owen Donley III, Office of Investor Education and Advocacy
Mark Uyeda, Division of Investment Management


Mr. Dear opened the meeting. Ms. Schock introduced the new Chair of the Securities and Exchange Commission, Mary Jo White. Chair White and Commissioner Gallagher welcomed the committee.


The committee approved the minutes without objection.


Ms. Roper, Chair of the Investor as Purchaser Subcommittee, commended the Commission for seeking to improve target date fund marketing materials through the Commission’s pending rule proposal.5 Ms. Roper stated that although the subcommittee agrees with the proposal in some respects, it has two concerns. First, Ms. Roper stated that the approach of the current rules, based on asset allocation as the primary tool to manage risk, may not be the best approach to managing risk that target date funds will use in the future. Second, she stated that the glide path illustration proposal is based on very broad categories, such as equities, debt, bonds, and cash, which are not defined in the proposal. She stated that this lack of definitions could conceal significant variance in risk within these categories in the glide path illustration such that two funds look like they have similar or the same exposure to risk when the risks vary considerably.

Ms. Roper presented five recommendations from the Investor as Purchaser Subcommittee on target date funds and invited comments and questions on each.

Recommendation 1

The Commission should develop a glide path illustration for target date funds that is based on a standardized measure of fund risk (see Recommendation 2) as either a replacement for or supplement to its proposed asset allocation glide path illustration.

Committee discussion of Recommendation 1 focused on (i) comparable disclosures in other investment vehicles, (ii) identifying risk measures, (iii) whether the recommended glide path illustration should be a replacement or a supplement to the Commission’s proposed asset allocation glide path illustration, (iv) overlapping jurisdiction with the Department of Labor on target date funds, (v) whether the Commission should define the asset classes from its proposal, and (vi) whether target date funds should be able to call themselves “target date funds” if their investment strategy doesn’t meet certain prescribed characteristics.

Recommendation 2

The Commission should adopt a standard methodology or methodologies to be used in both the risk-based and asset allocation glide path illustrations.

Committee discussion of Recommendation 2 focused on (i) using stress tests to evaluate risk, (ii) clear disclosure of how each fund identifies, measures, and manages risk, and (iii) ensuring that the methodology sought in the recommendation does not oversimplify the risks.

Recommendation 3

The Commission should require target date fund prospectuses to disclose and clearly explain the policies and assumptions used to design and manage the target date offerings to attain the target risk level over the life of the fund.

Committee discussion of Recommendation 3 focused on differences in legal liability between prospectuses and marketing materials for making misrepresentations.

Recommendation 4

The Committee strongly supports the Commission proposal to require target date fund marketing materials to include a warning that the fund is not guaranteed and that losses are possible, including at or after the target date. The Commission should consider testing various approaches to providing this disclosure to determine the most effective approach and then mandate that approach in the final rule.

The committee did not have questions or comments on Recommendation 4.

Recommendation 5

The Commission should amend the fee disclosure requirements for target date funds to provide better information about the likely impact of fund fees on total accumulations over the expected holding period of the investment.

Committee discussion of Recommendation 5 focused on (i) whether fees change as the fund asset allocation changes, (ii) whether applying the recommendation only to target date funds will drive investors into unsuitable investments, (iii) whether the recommendation should require comparability across investments products, (iv) whether the committee could provide the recommendations as advice to the Department of Labor for employee plans it regulates, and (v) support for testing disclosure language to determine if it conveys the desired message.

During discussion of Recommendation 5, the committee amended Recommendation 5. The committee replaced “The Commission should consider amending” with “The Commission should amend.” In addition, the committee replaced “over the lifetime of the investment” with “over the expected holding period of the investment.”


Mr. Wallman, as Chair of the Market Structure Subcommittee, raised several issues he suggested the committee may want to address. The issues were (i) the feasibility of investment advisor regulation by the Financial Industry Regulatory Authority (FINRA), (ii) the financial transaction tax, (iii) mandatory arbitration provisions in broker-dealer agreements, (iv) the SEC/CFTC jurisdiction division, and (v) money market fund regulation.



Mr. Ganser reported that the Investor Education Subcommittee caucused with the Investor as Purchaser Subcommittee. They are planning a joint conference call with representatives from crowd funding portals in early May. The subcommittee may focus on retiree education, including public service announcements.


Mr. Wallman reported that the Market Structure Subcommittee discussed two major issues. First, the subcommittee discussed shortening the settlement cycle. Second, the subcommittee discussed decimalization, specifically increasing the minimum tick size above a penny. The subcommittee may make a recommendation to the committee that the minimum tick size not be increased. The subcommittee plans to have recommendations in at least one of these major areas for consideration by the committee at the July meeting.

The subcommittee also discussed organizing issues into four areas. The first area, institutional investors, would include high frequency trading, dark pools, and volatility trade executions. The second area, systemic risk, would include money market fund issues and shortening the settlement cycle. The third area, market structure issues and governance, would include SEC/CFTC jurisdiction, SEC/FINRA jurisdiction, and self-regulatory organizations for advisory firms. The fourth area, overlapping issues with other subcommittees, includes fiduciary duties and mandatory arbitration. After discussion with the Investor as Purchaser Subcommittee, the Market Structure Subcommittee will focus on money market fund issues and the Investor as Purchaser Subcommittee will focus on mandatory arbitration and fiduciary duties.


Ms. Roper reported that the Investor as Purchaser Subcommittee discussed fiduciary duties and mandatory arbitration. The subcommittee also discussed how it can facilitate more retail investor input and comment on SEC rulemakings.


Ms. Sheehan reported that the Investor as Owner Subcommittee is preparing a request to survey shareholder voting data in order to compare voter instruction form information and proxy card information to determine if the information is identical. The subcommittee is planning a briefing session with proxy advisory firms. The subcommittee also discussed an April 10, 2013 briefing by the Division of Trading and Markets, the Division of Corporation Finance, and the Division of Risk Strategy and Financial Innovation6 on beneficial ownership rules. The subcommittee is preparing recommendations for the July committee meeting on (i) file data tagging and (ii) proxy issues. The subcommittee encouraged continued progress on the Dodd-Frank Wall Street Reform and Consumer Protection Act rules and JOBS Act rules. The subcommittee is conducting a teleconference to discuss executive compensation disclosure. The subcommittee anticipates teleconferences on CEO median pay ratios.


The Office of Investor Education and Advocacy will revise the subcommittees’ work description based on the subcommittee reports and recirculate the description to the committee for comment. The committee agreed that subcommittee chairs can authorize the language to be posted on the Investor Advisory Committee website.


Mr. Dear closed the meeting.

1 A Webcast of the meeting is available at http://www.sec.gov/video/webcast-archive-player.shtml?document_id=iac041113.

2 For purposes of these minutes, descriptions of discussions have been grouped and listed seriatim, even though the discussions of different items overlapped on occasion.

3 The January 18, 2013, meeting minutes are available at http://www.sec.gov/spotlight/investor-advisory-committee-2012/iac011813-minutes.htm.

4 The Recommendations of the Investor as Purchaser Subcommittee on Target Date Funds are available here.

5 Securities and Exchange Commission, Investment Company Advertising: Target Date Retirement Fund Names and Marketing, File No. S7-12-10, June 23, 2010, available here.

6 The Division of Risk Strategy and Financial Innovation has been renamed the Division of Economic and Risk Analysis.



Modified: 07/30/2013