Minutes of the Meeting on July 16, 2015

The Investor Advisory Committee (IAC) met on July 16, 2015, in a public meeting that was transmitted live by webcast. The meeting convened at approximately 10:00 a.m. in the multipurpose room of the Securities and Exchange Commission’s headquarters in Washington, D.C.

The following persons attended the meeting:

Commissioners of the Securities and Exchange Commission

• Commissioner Kara Stein (morning session only)

Advisory Committee Members[1]

• Kurt Schacht, Chairman
• Anne Sheehan, Vice Chairman
• J. Robert Brown, Jr., Secretary
• Jean Setzfand, Assistant Secretary
• Darcy Bradbury
• Joseph V. Carcello
• Eugene Duffy
• Rick Fleming
• Roger Ganser
• Craig Goettsch
• Joseph Grundfest (by telephone, morning only)
• Stephen Holmes
• Adam M. Kanzer
• Roy Katzovicz
• Hester Peirce
• Barbara Roper
• Alan Schnitzer (by telephone)
• Damon Silvers (by telephone, morning only)
• Steven Wallman

Staff of the Securities and Exchange Commission

• Jonathan Ingram, Deputy Chief Counsel, Division of Corporation Finance
• Susan Nash, Associate Director and Deputy for Disclosure Policy, Division of Investment Management
• Lori Schock, Director, Office of Investor Education and Advocacy

Outside Speakers

• Mercer Bullard, MDLA Distinguished Lecturer and Professor of Law and Director, Business Law Institute, University of Mississippi School of Law; President and Founder, Fund Democracy, Inc.
• Michael Garland, Assistant Comptroller for Corporate Governance and Responsible Investment, New York City Office of the Comptroller
• Timothy D. Hauser, Deputy Assistant Secretary, Employee Benefits Security Administration, U.S. Department of Labor
• Jerome F. Lombard Jr., President, Janney Private Client Group, Janney Montgomery Scott LLC
• Judy Mares, Deputy Assistant Secretary, Employee Benefits Security Administration, U.S. Department of Labor
• Patrick McGurn, Special Counsel, Institutional Shareholder Services Inc.
• Marilyn Mohrman-Gillis, Managing Director, Public Policy and Communications, Certified Financial Planner Board of Standards, Inc.

MORNING SESSION

Mr. Schacht opened the meeting and invited SEC Investor Advocate Rick Fleming to speak. Mr. Fleming conveyed the Commissioners’ regrets that scheduling conflicts prevented them from to attending the meeting. Mr. Fleming added that Commissioner Stein was expected to join the meeting shortly.

Approval of Minutes of Meeting on April 9, 2015

Mr. Brown moved to approve the minutes of the Committee’s previous meeting, which was held on April 9, 2015. Ms. Sheehan seconded the motion. The Committee approved the minutes as presented without objection.

Consideration of Recommendation of the Investor as Owner Subcommittee on Empowering Elders and Other Investors: Background Checks in the Financial Markets

Mr. Brown presented the Recommendation^[2]:

Recommendation 1: The Investor Advisory Committee recommends that the SEC develop a disciplinary database for violations of the securities laws that will allow elders and other investors to easily conduct searches of any person or firm sanctioned for these violations.

Recommendation 2: The Investor Advisory Committee recommends that the SEC take steps to reduce the complexity of background searches by taking steps to simplify the search process, including steps to ensure comparable quality between BrokerCheck and IAPD and the development of an appropriately named site that will permit elders and other investors, through a single search, to access information in all databases supervised in whole or in part by the SEC.

Recommendation 3: The Investor Advisory Committee recommends that the SEC seek to obtain the agreement from other federal regulators, self-regulatory organizations, and state regulators for the development of a single site that will permit a search of all relevant databases that provide background information on financial market professionals.

Mr. Brown introduced what he described as a friendly, technical amendment, beginning on page 8 in the second paragraph of section 2, Investment Adviser Public Disclosure (“IAPD”):

Information in the IAPD is derived in part from the Investment Adviser Registration Depository (“IARD”).[3]  Modeled after the CRD,[4] the IARD is “an electronic filing system” for investment advisers sponsored by the SEC and NASAA and operated by FINRA.[5] The system collects information provided on Form ADV, including the brochure (Part 2A of that form), and various uniform forms required by state law, including the U4.[6]

As with the CRD system, the IAPD includes only a subset of the information contained in the IARD regarding investment adviser representatives. Unlike BrokerCheck, no explicit rule addresses the relationship between the information in the IARD and the information available in IAPD. These decisions are generally determined through negotiations among FINRA, the states, and the SEC. As a practical matter, however, IAPD essentially duplicates the disclosure contained in BrokerCheck.[7]

The IAPD provides investors with access to the information contained in forms ADV,[8] including the brochure.[9] The brochure supplement, Part 2B of Form ADV, contains “information about the educational background, business experience, and disciplinary history (if any) of the supervised persons who provide advisory services to the client.”[10] In addition, the IAPD has, since 2010, included information provided by advisor representatives on Form U4. As with BrokerCheck, the IAPD contains some information on formerly registered advisers and investment adviser representatives.[11]

Upon a motion introduced by Mr. Brown and seconded by Ms. Sheehan, the Committee voted without objection to adopt the recommendation as amended.

Opening Remarks by Commissioner Stein

Mr. Schacht invited Commissioner Stein to offer her remarks. She observed that the Commissioners, while covering a wide spectrum of the financial marketplace, benefited from the Committee’s deep focus and its recommendations on particular issues.

Discussion of the DOL Fiduciary Rule Proposal

Ms. Roper introduced the topic and panelists, who spoke in this order:

Judy Mares, Deputy Assistant Secretary, Employee Benefits Security Administration, U.S. Department of Labor

• Timothy D. Hauser, Deputy Assistant Secretary, Employee Benefits Security Administration, U.S. Department of Labor
• Jerome F. Lombard Jr., President, Janney Private Client Group, Janney Montgomery Scott LLC
• Marilyn Mohrman-Gillis, Managing Director, Public Policy and Communications, Certified Financial Planner Board of Standards, Inc.

IAC members asked questions of the panelists and engaged in discussion of the issue, without taking committee action.

Shareholder Rights Update Panel

Ms. Sheehan introduced the next topic and panelists, who spoke in this order:

1. Patrick McGurn, Special Counsel, Institutional Shareholder Services Inc.
2. Michael Garland, Assistant Comptroller for Corporate Governance and Responsible Investment, NYC Office of the Comptroller
3. Jonathan Ingram, Deputy Chief Counsel, Division of Corporation Finance, SEC

IAC members asked questions of the panelists and engaged in discussion of the issue, without taking committee action.

RECESS

The Committee went into recess at approximately 12:15 p.m. for lunch and a non-public administrative session.

AFTERNOON SESSION

The public meeting resumed at approximately 2:45 p.m.

Investment Management Panel Discussion – Disclosure of Fees and Risks in Fund Products

Ms. Roper introduced the topic and panelists, who spoke in this order:

Lori Schock, Director, Office of Investor Education and Advocacy, SEC

• Susan Nash, Associate Director and Deputy for Disclosure Policy, Division of Investment Management, SEC
• Mercer Bullard, MDLA Distinguished Lecturer and Professor of Law; Director, Business Law Institute, University of Mississippi School of Law; President and Founder, Fund Democracy, Inc.

IAC members asked questions of the panelists and engaged in discussion of the issue, without taking committee action.

CLOSING

The meeting was adjourned at 3:49 p.m.