In a speech yesterday before the Consumer Federation of America 21st Annual Financial Services Conference, SEC Chairman Mary L. Schapiro took aim at some issues facing individual investors retail investors. Schapiro said that Congress, the Administration, and the financial oversight agencies had made great progress in reforming regulation to protect investors, but stressed that "we still have a ways to go."
Chairman Schapiro started with a wish list for consumers on the legislative front:
We need a regulatory system that is focused on identifying and minimizing systemic risk — one that can eliminate gaps in our regulatory structure, protect investor rights and promote fair competition.
We need a credible resolution regime that permits large institutions to fail without taking the system or taxpayers down with them — a regime that eliminates artificial advantages and incentives that encourage institutions to get so big and complicated in the first place.
We need to bring managers of hedge funds and other private funds under the regulatory umbrella. For too long, these large players have managed to avoid effective oversight.
We need to have a strong fiduciary standard for all securities professionals.
On the regulatory front, Schapiro said that the SEC need not wait for Congress to enact reforms on a macro-economic level in order, but can and has "undertaken initiatives to protect client assets at investment advisers, address market structure inequities, enhance corporate governance, strengthen the resiliency of money market funds, and upgrade regulation of credit rating agencies."
Schapiro said the focus of these reforms, both legislative and regulatory, should be helping and protecting individual investors.
I want to be sure that we — at the SEC — are putting just as much thought and energy into how to protect individuals who are entrusting their money to our capital markets.
According to Ms. Schapiro, this protection should begin with the the investors experience the minute he or she walks in the door to meet with a securities professional. A priority of the Commission remains treating securities professionals, whether they be broker-dealers or investment advisers similarly, applying the same standard, a fiduciary standard.
I believe that all securities professionals should be subject to the same fiduciary duty — and that all investors receiving advice should rest assured that the advice they get is being given with their interest at heart.
But, to be effective, the fiduciary duty needs to be meaningful and uniform across all securities professionals. It cannot be weakened or diluted just so that it can be applied broadly.
To fully protect the interests of that investor, we must couple the fiduciary duty with an effective oversight regime. And because that investor doesn't differentiate between broker-dealers and investment advisers, our rules should not either.
The fair treatment and protection of retail investors should also include "a clear, simple, meaningful disclosure at the time they are making an investment decision — disclosure that includes comprehensible and comparable information about the securities products and services being offered." Schapiro restated her commitment to a meaningful and uniform point of sale document for securities transactions.
Schapiro also called for the reform of fund fees, in particular, Rule 12b-1 fees, that are automatically deducted from mutual funds to compensate securities professionals for sales and services provided to mutual fund investors. A reexamination of 12b-1 fees calls for critically rethinking how the fees are used, whether they continue to be appropriate, and whether they are duplicative or unfair to investors. Schapiro has called on the SEC staff to provide her with recommendations for Rule 12b-1 reform in 2010.
In the area of retirement products, Schapiro said that the Commission is focusing on its investor education efforts, as well as a reexamination of target-date funds, their marketing and disclosure practices, and whether they are delivering what they promise to investors.
Schapiro concluded her remarks by calling for the SEC to be self-funded, in order to assure the agency has resources sufficient to meet its obligations to investors and the financial industry.
The full text of Chairman Schapiro's December 3 address is available at: http://www.sec.gov/news/speech/2009/spch120309mls.htm