The SEC's plan tacitly reinforces the objectives behind its proposed Regulation Best Interest, which is designed to enhance broker-dealers' standard of care in servicing retail investors, although the proposed standard isn't mentioned. (Photo: Diego M. Radzinschi/ALM)
Protecting the interests of long-term, “Main Street” investors is the top goal of the Securities and Exchange Commission, according to the agency's formal Strategic Plan for fiscal years 2018 to 2022.
The document, released this week, tacitly reinforces the objectives behind the agency's proposed Regulation Best Interest, which is designed to enhance broker-dealers' standard of care in servicing retail investors.
Choices for professional advice “not as clear as they should be”
The proposed standard is not mentioned in the Strategic Plan. But the document's imperative protecting the interests of retail investors underscores a theme SEC Chair Jay Clayton has repeatedly pronounced in public comments since taking the helm of the Commission in May of 2017. Clayton's term is scheduled to end in 2021.
“When Main Street investors seek professional advice, their choices all too often are not as clear as they should be,” the Strategic Plan states. “The distinction between investment professionals who sell securities and those who provide investment advice has become less clear. This lack of clarity makes it challenging for investors to understand what standards of conduct govern the investment professionals who assist them.”
Dwindling number of publicly listed corporations
The document also implies that the dwindling number of publicly listed corporations is crowding out retail investors' access to investment opportunities, a concern Chair Clayton has also repeatedly raised.
At the end of 2017, roughly 3,600 businesses were listed on U.S. stock exchanges, down by more than half from two decades ago, according to Bloomberg.
“The number of companies raising capital through the public securities markets has declined, and those that are joining our public disclosure and offering regime are doing so later in their lifecycle. This dynamic has reduced the number of opportunities our Main Street investors have to invest in companies, including those in the emerging and growth sectors of our economy,” SEC's Strategic Plan states.
The document does not go so far as to suggest opening up private equity investment to more retail investors, but suggests growing the number of public companies registered with the SEC and listed on public exchanges as a way to “increase the number and range of long-term, cost-effective investment options available to retail investors.”
The agency will expand its outreach to retail investors and small business owners, according to the document.
Continued pursuit of enforcement, examination initiatives
The agency also pledges continued pursuit of enforcement and examination initiatives to identify registered reps' misconduct in the retail market.
“The SEC plans to expand our efforts in various areas, including, for example, securities custody and penny stock trading. Recently, increased focus in these areas has detected and, we believe, deterred fraud that impacts our retail investors,” the document states.
Share Class Selection Disclosure initiative
Under one investor protection initiative launched last February, the SEC targeted “potential widespread violations” of the Investment Advisers Act of 1940 by registered investment advisors.
The Share Class Selection Disclosure Initiative targeted advisors' failure to disclose 12b-1 fees on mutual funds, and instances where higher-cost share classes were sold when lower-cost shares of the same funds were available.
Under the program, advisors and their firms that self-reported violations by June 12 would not be subject to civil penalties. But the initiative does require firms to return ill-gotten gains on the sale of higher-cost share classes.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
