SEC Urged to Adopt Pro-Investor Approach to Regulation of Investment Professionals
In a comment letter filed with the SEC this week, CFA urged the agency to use its latest study of the obligations of broker-dealers and investment advisers to lay the groundwork for a rational, pro-investor approach to the regulation of these investment professionals.
The ultimate goal should be a policy that ensures: 1) that regulatory requirements are based on the nature of the services being offered rather than the nature of the firm offering the services, and 2) that those regulatory requirements afford the highest possible level of protection to vulnerable and unsophisticated retail investors.
“No issue is of greater importance to average investors than the regulation of the investment professionals they rely on for advice as they plan for retirement, a child’s college education, or other important long-term goals,” said CFA Director of Investor Protection Barbara Roper. “Unfortunately, inconsistent regulatory treatment of brokers and advisers has created a market of impenetrable complexity in which confused investors are inadequately protected and unable to effectively fend for themselves.”
The Dodd-Frank Wall Street Reform and Consumer Protection Act provides the SEC with the authority it needs to end this confusing regulatory framework by imposing the Advisers Act fiduciary duty on brokers when they give personalized investment advice and recommend securities to retail investors. But the law requires the SEC to conduct a study of the issue prior to writing new rules. “For years, CFA has argued that it makes no sense to regulate individuals and services that are indistinguishable to the average investor under different standards,” Roper said. “Properly conducted, this study represents the first step in the process of eliminating investor confusion and restoring a rational, pro-investor approach to the regulation of investment professionals.”
Roper expressed confidence that a properly conducted study will support imposition of a fiduciary duty on investment advice and recommendations by all investment professionals. “That is what the Administration promised when it released its White Paper on financial regulatory reform more than a year ago, it is what Congress intended when it adopted the Dodd-Frank Act, and it is what investors both expect and deserve,” she said.
The SEC has just six months from the date of enactment of the Dodd-Frank Act to complete the study, after which it will be free to proceed with rules.
Consumer Groups Oppose Comcast-NBC Universal Merger
CFA joined with Free Press, Media Access Project, and Consumers Union to file comments in August with the Federal Communications Commission urging the agency to reject Comcast’s proposed takeover of NBC Universal. An analysis of the thousands of pages of confidential documents the two companies were forced to make available for review demonstrates “that this merger will reduce competition, raise prices, and harm the public,” CFA Director of Research Mark Cooper said. No formal timeline has been set for a final decision on the merger. A news release on the comment letter is available here.
IRS Announces End to Support for Refund Anticipation Loans
The Internal Revenue Service announced in August that it will discontinue a service that has aided banks in making high cost refund anticipation loans (RALs) to the working poor, an action CFA has long advocated. The IRS had been providing a service called the “debt indicator,” which helps banks that partner with tax preparers to make loans based on the borrower’s expected tax refund. The “debt indicator” acts as a form of credit check, telling tax preparers whether a taxpayer’s refund will be paid or will be intercepted for government debts.
In a joint CFA-National Consumer Law Center news release praising the IRS action, CFA Director of Financial Services Jean Ann Fox said, “The federal government should not be sharing taxpayers’ personal information for the profit of banks and tax preparers by operating what is essentially a free credit reporting service for them. We are glad the IRS finally stopped letting tax preparers and banks pry into taxpayers’ records about what they owe the government.”
CFA Cheers Recess Appointment of Hagen as Under Secretary for Food Safety
During the August congressional recess, President Obama filled the position of Under Secretary for Food Safety at USDA by giving Elisabeth Hagen, M.D. a recess appointment to the position. In a statement released to the press, Carol Tucker-Foreman, Distinguished Fellow of CFA’s Food Policy Institute, said the President had “served the country well” by making the recess appointment to a position that has stood vacant for two years. “Dr. Hagen, currently the USDA Chief Medical Officer, brings to the position excellent medical training and substantial knowledge of the USDA’s food safety programs,” she said. “There is every reason for the Senate to confirm her nomination as soon as they return from the August recess.”
Action Needed to Protect Service Members’ Families from Abusive Insurance Practice
Amidst news reports that some military families are being denied immediate access to life insurance proceeds that they should receive, CFA wrote to Secretary of Defense Robert Gates and Secretary of Veterans Affairs Eric Shinseki this summer urging them to take immediate action to protect families of service members and veterans from the unscrupulous payout practices of some life insurers.
According to reports that first gained attention through a Bloomberg article, some life insurers deposit payouts owed to military families into the company’s own accounts, sending “checkbooks” to the families that represent little more than IOUs on the account. This practice generates a profit for the insurer while paying out a paltry interest to military families, said CFA Director of Insurance J. Robert Hunter. Moreover, it puts the money at risk, since funds are not protected by FDIC and could be lost if the insurer goes out of business.
“For centuries, life insurers paid off the family at once when an insured died. Now, some life insurers are trying to keep the family’s funds in their accounts, putting the beneficiaries at risk,” Hunter said.
Both the Veterans Administration and the New York Department of Insurance have pledged to look into the practice. The Department of Defense Office of the Under Secretary indicated in an August letter that, while it had discussed the issue with NAIC and would continue to monitor the practice, it had no plans to take any additional action at this time.
The letter to Secretary Gates is available here. The letter to Secretary Shinseki is available here.