Securities and Exchange Commission Chairman Jay Clayton laid out his regulatory agenda for 2019 Thursday afternoon at a SIPA event held at Columbia University in New York City. Top initiatives include finalizing the agency’s proposed Regulation Best Interest and standards of conduct for financial advisors and expanding investor access to private offerings.
The agency plans to improve, harmonize and streamline its private offering system, Clayton said. A concept release is in the works that will seek comments on the current definition of an accredited investor, the threshold for investing in private placements. Currently, an accredited investor is anyone with income that exceeded $200,000 (or $300,000 with a spouse) in each of the prior two years, or those with a net worth over $1 million (excluding the value of their primary residence).
The concept release will explore whether the current definition “is appropriately tailored to address both investment opportunity and investor protection concerns,” Clayton said.
“With the shift away from the traditional defined benefit pension plans, American workers are increasingly having to rely primarily on defined contribution plans, such as 401(k) plans and IRAs, to save for retirement,” Clayton said in his prepared remarks. “We owe it to these investors to make sure they have access to a broad mix of investment opportunities to save for retirement and to achieve other financial goals. Accordingly, we are also looking at initiatives to facilitate access to capital for issuers and to make sure Main Street investors have the best possible mix of investment opportunities.”
Clayton called out the JOBS Act 3.0, a bipartisan package of bills designed to spur capital formation and more initial public offerings. It was passed by the House of Representatives in July of this year, but has yet to be taken up in the Senate.
But the legislation also includes a bill that would expand the definition of an accredited investor to include education or job experience as a qualification. The Financial Industry Regulatory Authority, or an equivalent self-regulatory organization, would oversee that process, the bill says.
Reg BI is also a significant initiative for next year, Clayton said. The proposal, introduced in April, is meant to ensure advisors and brokers act in the “best interest” of clients, even as it allows for “conflicted” business models (incentives to brokers to sell certain financial products) to exist, as long as those conflicts are disclosed and mitigated. The SEC’s move, mandated by Congress, comes after the Department of Labor’s fiduciary rule for advisors to retirement accounts—which went further in assuring a best interest standard—did not survive a court challenge.
Since introducing the proposal, the agency has conducted seven investor roundtables across the country and collected some 6,000 comment letters. The staff is currently reviewing all this information as it develops final recommendations.
Industry groups and investor advocates have been calling for rigorous testing of the Customer Relationship Summary, a disclosure document that’s part of the proposal. The SEC’s Office of the Investor Advocate released a research report last month, in conjunction with the RAND Corporation, testing investors’ use of the four-page mockup form.
“Broker-dealers and investment advisers both provide investment advice to their customers, but have different relationships and are subject to various different regulatory regimes,” Clayton said. “However, many retail investors do not have a firm grasp of the important differences between broker-dealers and investment advisers—(1) differences in the variety of services that they offer, (2) how investors pay for those services, and (3) the regulatory frameworks that govern their relationship.”
“A complex set of issues, no doubt, but we must also recognize that access to investment advice is increasingly important to our society.”
Clayton said the agency has moved forward on 23 of the 26 rules in its near-term agenda during the last year.
