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15 Dec 2017
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Challenges and Opportunities Facing Investors and the SEC in 2018

Earlier this month, SEC Commissioner Kara M. Stein, discussed her views regarding the challenges and opportunities facing investors and investment managers in the current economic climate at the Investment Company Institute’s 2017 Securities Law Developments Conference. The purpose of the conference was to create space for dialogue between the SEC and investment advisers and managers regarding the most pressing matters impacting investors, particularly retail investors. “[I]nvestors need to have confidence in the safety and soundness of investment products … investor trust cannot be designed or manufactures. Trust must be earned – through diligence, through restraint, and through experience.”[1] With this in mind, Stein discussed issues impacting investors in today’s market: disclosures and investor trust.

Disclosure

How will disclosure change in 2018? Over the past thirty years the way investors submit their disclosure forms has become more efficient with technology. Forms can now be easily filed on EDGAR, the SEC’s online company filing database. However, there is always room for improvement. The SEC is committed to expanding their use of technology to help investors make quicker, efficient, and more informed decisions. “[W]e can envision a future where users query SEC data from their smartphones. Or, perhaps even through social media.”[2] Greater use of technology can revolutionize disclosures. If investors could access secure information, provided by the SEC, on their smartphones, tablets, and computers, then disclosures could be designed for each investor in a more comprehensive way. The SEC’s Investment Advisor Committee has also proposed to create summary shareholder reports to be sent to investors either by mail or e-mail. Providing these reports via e-mail will significantly reduce costs of printing and delivery.

Stein expressed her concerns regarding a heavier reliance on technology. For instance, there is a proposed rule, 30e-3, which would make shareholder reports accessible via e-delivery. As e-delivery has proven to be efficient, useful, and environmentally friendly, the issue here is that it would shift the burden onto investors, regardless of whether they opt in to use the e-delivery service. Although many will utilize the electronic access, not everyone will have access to the internet. The SEC must find a balance in 2018 between advancing their systems with technology and protecting the interests of investors.

Investor Trust

The securities market requires investor trust, particularly retail investors. Investment advisers and managers bare a great deal of responsibility – in June 2017, retirement investments made up $26 trillion. Regulating this area has proven to be difficult over the years, although lately, particularly for retirement funds, policies have been implemented to create greater transparency among broker-dealer and investors. Regulations around the globe have attempted to bridge the gap between investors and advisers by enforcing policies to be transparent with fees and expenses, prevent conflicts of interest and bias, and continue to provide high-quality advice. [3] These factors are paramount in fortifying investor trust. Stein suggests that when conflicts arise between investors and advisers, the advisers should settle the conflicts not by applying a one-size-fits-all standard, but by applying the standard that “is appropriate for the conduct in which the person is engaging”[4] – this needs to be the change for 2018.

[1] Stein, Kara M. (Dec. 7, 2017) “Address at Investment Compant Institute’s 2017 Securities Law Developments Conference.” Securities and Exchange Commission, Speeches. Available at: https://www.sec.gov/news/speech/stein-ici-securities-law-developments-conference-2017. Accessed on Dec. 15, 2017.

[2] Ib.

[3] See Guzov, LLC. “EU Regulation Impact Wall Street”. Available at: http://guzovllc.com/eu-regulations-impact-wall-street/.; Guzov, LLC. “The Fiduciary Rule: What does it apply to?” Available at: http://guzovllc.com/fiduciary-rule-apply/.

[4] Op. Cit. n1.

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