On 6/14/18, Financial Services Institute President & CEO Dale Brown participated in a discussion on the CRS Relationship Summary as part of a larger discussion on the SEC Regulation Best Interest Proposal at the SEC Investor Advisory Committee meeting in Atlanta, GA.
We believe this is important and relevant to fintech because advisors can - and should - use their technology suite to satisfy this proposed regulation in order to stay compliant. See the speech below.
Statement of Dale E. Brown, CAE, President & CEO, Financial Services Institute before the SEC Investor Advisory Committee June 14, 2018 Atlanta, GA
Discussion Regarding the Commission’s Proposed Form CRS Relationship Summary, Including Effective Disclosure and DesignIntroduction
Good morning to all the Commissioners and members of the committee. I am Dale Brown, President and CEO of the Financial Services Institute (FSI) based in Washington, D.C. FSI members are independent broker-dealer and registered investor advisory firms and their associated dually registered financial advisors. We are the only organization advocating solely on behalf of these independent firms and financial advisors. Since 2004, FSI has advocated for a regulatory environment that enhances investor protection and encourages efficient and effective regulation.
We do so through constructive engagement with policy makers and elected officials in Washington, D.C. and the states.
FSI members provide affordable, objective advice to hard-working Main Street Americans. Independent financial advisors help their clients achieve their important financial goals, such as planning for a dignified retirement, saving for their children’s education, supporting loved ones in old age, and dealing with healthcare issues.
FSI has over 100 independent firms who license upward of 160,000 affiliated financial advisors, over 34,000 of whom are also FSI members themselves. FSI’s voice is unique in that we are able to bring the perspectives of local independent financial advisors and independent firms to important regulatory issues such as the SEC Regulation Best Interest proposal.
Reg BI should Incorporate Past Lessons Learned Regarding Disclosures
I am grateful to be here today to talk about the Customer Relationship Summary (CRS), which directly impacts financial advisors and their clients. First, I will talk about the CRS specifically, and then I would like to end by briefly discussing the best interest proposal generally and provide some background on how FSI has historically approached this issue.
More disclosure does not result in better disclosure. For example, the 1999 Gramm-Leach-Bliley Act required banks and other financial institutions to make very detailed annual privacy policy disclosures to consumers. The resulting notices were long, complex, and written in legalistic jargon that was difficult for consumers to understand. In 2006, Congress directed the financial regulatory agencies to jointly develop a streamlined model financial privacy form. Consumer testing showed that customers were more likely to read notices that were simple, provided key context up front, and had pleasing design elements, such as large amounts of white space. These findings wereincorporated into the agencies’ model form. We believe the CRS should incorporate all these lessons as well as other information and insight gleaned from consumer testing on this issue in the years since the model form was developed.
Indeed, the SEC has significant expertise related to investor disclosure and is well positioned to formulate disclosure requirements that maximize their effectiveness. For example, the Office of the Investor Advocate is engaged in an evidence-based study of the impacts of proposed policy changes, including disclosure-oriented policies. Additionally, the SEC is conducting roundtables to hear directly from investors what sorts of disclosures and formats are important to them. This investor focus is essential to formulate reasonable, full, fair disclosure that is effective and engaging.
FSI Supports a Two-Tier Disclosure Regime
FSI has long advocated for a two-tier client disclosure regime that starts with a concise point-of- sale document at the time of formal engagement between the advisor and the investor. This initial disclosure would then be supplemented with more detailed disclosures posted to the Financial Institution’s website or otherwise made available to the investor in a format or formats they prefer.
1st Tier
We suggested in our initial comments to Chair Clayton’s request for information that the first-tier disclosure will serve to inform investors of the information that is most critical to their decision- making at the point in time when that information is most useful, can be delivered most efficiently, and provides the investor the opportunity to ask additional questions. We suggested that the first- tier disclosure might contain: