Securities and Exchange Commission Investor Advisory Committee Minutes of November 22, 2013 Meeting

The Investor Advisory Committee convened its November 22, 2013 meeting at 10:00 a.m. in the multipurpose room of the Securities and Exchange Commission’s headquarters in Washington, D.C. The meeting lasted until approximately 12:15 p.m. and was open to the public. Those attending were:

Darcy Bradbury
J. Robert Brown, Jr.
Joseph Dear
Eugene Duffy
Roger Ganser
Craig Goettsch
Stephen Holmes
Adam Kanzer
Roy Katzovicz
Barbara Roper
Kurt Schacht
Jean Setzfand
Anne Sheehan
Damon Silvers (morning session only)
Steven Wallman
Ann Yerger

Lori J. Schock, Office of Investor Education and Advocacy
M. Owen Donley III, Office of Investor Education and Advocacy

OPENING²

Mr. Dear opened the meeting. Chair White welcomed the Committee and answered questions. Chair White delivered remarks summarizing the Commission’s rulemaking efforts since the Committee’s July 25, 2013 meeting and updated the Committee on Commission consideration of the Committee’s target date funds, universal proxy ballots, and data tagging recommendations.

July 25, 2013 MEETING MINUTES APPROVAL³

COMMITTEE OFFICERS’ MEETING WITH CHAIR WHITE

Mr. Brown briefed the Committee on a meeting the Committee Chairman, Vice Chairman, Secretary, Assistant Secretary, and the Chairs of the Investor as Purchaser and the Investor as Owner Subcommittees had with Chair White and certain members of the Commission staff. The participants discussed the procedures for Commission responses to recommendations, such as the recommendations on target date funds, universal proxy ballots, and data tagging.

CONSIDERATION OF RECOMMENDATION OF THE INVESTOR AS PURCHASER SUBCOMMITTEE REGARDING LEGISLATION TO FUND INVESTMENT ADVISER EXAMINATIONS⁴

Mr. Goettsch presented the recommendation (italicized below) from the Investor as Purchaser Subcommittee on legislation to fund investment adviser examinations and invited comments and questions.

The SEC should request legislation from Congress that would authorize its Office of Inspection, Examination, and Enforcement (OCIE) to impose “user fees” on SEC-registered investment advisers, the revenue from which could be retained by the Commission to fund an enhanced investment adviser examination program including more frequent on-site examinations of SEC-registered advisers. As the Commission Staff Section 914 Study observes, user fees imposed upon registered investment advisers would provide scalable resources to support the Commission’s examination of registered investment advisers. The fees collected from investment advisers would be available to the Commission without further appropriation, used solely to fund the Commission’s investment adviser examination program, and set at a level designed to achieve an acceptable frequency of examinations. The IAC observes that legislation that would effectuate this policy has been introduced in the 113th Congress.⁵

The Committee approved the recommendation with a technical amendment to correct the name of OCIE to the “Office of Compliance, Inspections, and Examinations.”

CONSIDERATION OF RECOMMENDATIONS OF THE INVESTOR AS PURCHASER SUBCOMMITTEE REGARDING BROKER-DEALER FIDUCIARY DUTY⁶

Ms. Roper, Chair of the Investor as Purchaser Subcommittee, presented the recommendations (italicized below) from the Investor as Purchaser Subcommittee on broker-dealer fiduciary duty and invited comments and questions.

The Commission should conduct a rulemaking to impose a fiduciary duty on broker-dealers when they provide personalized investment advice to retail investors.

A. The Committee favors an approach that involves rulemaking under the Investment Advisers Act to narrow the broker-dealer exclusion from the Act while providing a safe harbor for brokers who do not engage in broader investment advisory services or hold themselves out as providing such services.

B. At the same time, the Committee recognizes that the Commission is considering rulemaking under Section 913(g) of the Dodd-Frank Act. Should the Commission choose to conduct rulemaking under Section 913, the Committee supports the following approach:

In order to ensure that the standard is no weaker than the existing Advisers Act standard, any fiduciary rule adopted must incorporate an enforceable, principles-based obligation to act in the best interests of the customer.
In order to ensure the continued availability of transaction-based recommendations, any standard adopted should be sufficiently flexible to permit the existence of certain sales-related conflicts of interest, subject to a requirement that any such conflicts be fully disclosed and appropriately managed.
While recognizing that some forms of transaction-based payments would be acceptable under a fiduciary standard, the Commission should fulfill its Dodd-Frank mandate to “examine and, where appropriate, promulgate rules prohibiting or restricting certain sales practices, conflicts of interest, and compensation schemes for brokers, dealers, and investment advisers that the Commission deems contrary to the public interest and the protection of investors.”

As part of its rulemaking, the Commission should adopt a uniform, plain English disclosure document to be provided to customers and potential customers of broker-dealers and investment advisers that covers basic information about the nature of services offered, fees and compensation, conflicts of interest, and disciplinary record.

The Committee approved the recommendations with the following amendments to Recommendation 2.

As part of its rulemaking, the Commission should adopt a uniform, plain English disclosure document to be provided to customers and potential customers of broker-dealers and investment advisers at the start of the engagement, and periodically thereafter (emphasis added), that covers basic information about the nature of services offered, fees and compensation, conflicts of interest, and disciplinary record.

FUTURE COMMITTEE MEETING DATES APPROVAL

The Committee approved future meeting dates without objection. The approved dates are: (i) January 31, 2014; (ii) April 10, 2014; (iii) July 10, 2014; and (iv) October 9, 2014.

MARKET STRUCTURE SUBCOMMITTEE REPORT REGARDING TICK SIZE

Mr. Wallman presented an update on Market Structure Subcommittee efforts to present a recommendation at the January 2014 Committee meeting regarding tick size. Ms. Bradbury and Mr. Holmes presented opposing viewpoints to the Committee regarding increasing tick size and invited comments and questions.

CLOSING

² For purposes of these minutes, descriptions of discussions have been grouped and listed seriatim, even though the discussions of different items overlapped on occasion.

⁴ The Recommendation of the Investor as Purchaser Subcommittee on Legislation to Fund Investment Adviser Examinations is available here.

⁶ The Recommendation of the Investor as Purchaser Subcommittee on Broker-Dealer Fiduciary Duty is available here.

http://www.sec.gov/spotlight/investor-advisory-committee-2012/iac112213-minutes.htm