SEC Chair Reflects on Investor Comments regarding Proposed Standards of Conduct

SEC Chair Jay Clayton expressed support for several key concepts regarding the proposed standards of conduct for investment professionals. In a public statement, Mr. Clayton identified and expanded on points that “resonated” with him throughout the investor roundtable series on the proposed Standards of Conduct rules, particularly with regard to the relationship between broker-dealers and investment advisers and their retail customers. Thus far, the SEC has hosted six roundtable discussions.

Mr. Clayton asserted that:

  • the SEC should ensure that the core obligations of investment professions match investor expectations during the rulemaking process;
  • retail investors want to have the ability to select a brokerage account and/or an investment advisory relationship;
  • the proposed Standards of Conduct rules are intended to help retail investors distinguish between broker-dealers and investment advisers;
  • financial professionals should be able to provide clear answers for their clients regarding important investment considerations; and
  • sales practices in which an investment professional puts his or her interests before those of the customer should be eliminated.

The seventh roundtable discussion will take place in Baltimore, Maryland on September 20, 2018.

Lofchie Comment: The key question is as to bullet point 2: customers’ ability to select either a brokerage account or an advisory account. If the SEC determines to impose rules on brokerage accounts that make them inherently unprofitable for broker-dealers to offer, then investors will lose that choice. Making a product or service unprofitable to offer means that that market becomes unavailable, even if it remains legal.