Congress Worries: Do People Know an Advisor from a Broker?

Congress Worries: Do People Know an Advisor from a Broker?

House Democrats on the Financial Services Committee look set to approve the SEC Disclosure Effectiveness Testing Act, which would make the Securities and Exchange Commission conduct another round of consumer testing to see if people truly understand its draft disclosures, which seek to explain the difference between working with a financial advisor and a broker.

The matter at hand is the SEC’s Regulation Best Interest advice proposal, which Congress appears unwilling to accept without more testing among the public. Representative Sean Casten of Illinois, who authored the bill, has been critical of the SEC’s disclosure testing and wants to assure that the final Customer Relationship Summary (Form CRS), as suggested in draft by the SEC, provides clear information to potential customers.

The SEC has already tested Form CRS, but the rigor of their efforts has been questioned. The SEC conducted its survey online with 1,800 people and held a further 31 face-to-face interviews. The survey revealed that the disclosures in Form CRS failed to clarify the distinction between a broker and a registered investment advisor, and left the public unenlighted about the potential conflicts of interest involved with each class of investment professional.

In these circumstances, it is understandable that Congress chose to take action. During the recent hearings, Rep. Casten said that 31 one-on-one interviews were plainly inadequate for such an important task.

Consumer advocacy groups, including AARP and the Consumer Federation of America, have been following the issue. Their own testing suggests that the SEC’s disclosure proposals created confusion among potential investors and changes are needed before the boilerplate can be declared ready for prime time.

The bill now moves to the Senate, where its fate is unclear. The Republican majority may choose to approve it or they may prefer to introduce their own legislation on the matter.

For more information, please read:
Do Consumers Really Understand The Difference Between Brokers And Advisors? | Financial Advisor


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