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Q3 hedge fund letters, conference, scoops etc
The SEC disclosure has been on a five-month tour gathering feedback from investors through a series of roundtable discussions. The tour has not gone well. Investors everywhere have booed it off the stage. Why?
The disclosure is incomprehensible.
This result was not preordained. The SEC is in a hole today 35 years in the making. Getting out won’t be easy, but the route is clear. Commissioners Hester Peirce, a Republican appointee, and Kara Stein, a Democratic appointee, have set a tone and offer bipartisan guidance.
“We’re going to keep working on it until we get it right,” SEC Chair Jay Clayton said about his proposals after the seventh SEC roundtable in Baltimore. Investment News reported the chairman’s chief takeaway from investors was, “Try to give us some straight talk.”
Straight talk would help. In fact, securities regulations were conceived by President Roosevelt as a code of ethics in 1933 that was, as he said, “simple enough for the public to understand.”
Broker and advisor roles were well understood for years, until the conflation of the two began. Law professor Arthur Laby recounts how broker-dealers (BDs) began shedding their stockbroker title in the early 1980s for various “trusted advisor” titles. Examples abound. One firm advertised, “total financial planning.”
A Consumer Federation of America paper last year showed how BDs tell investors they’re trusted advisors, and then tell the courts they’re just sales people. Brokers lead a double life.
While advertised as trusted advisors and presumed to have been recruited, obliged, trained and compensated to advise, the fact is brokers do none of this. They distribute products and represent manufacturers.
This matters. Laby notes, “Advertising works [by creating] a positive emotional reaction” such as warmth that is stimulated by words or pictures of “friendship, caring, or tenderness.”
So there’s no surprise, in Washington anyway, when we hear again and again that the public misunderstands what brokers and advisors do. After 35 years of advertising brokers’ trust and confidence and “caring,” it’s obvious most investors don’t know BDs’ main function is to distribute products. This disclosure must be an “amber alert.” Anything less is not serious.
The SEC’s proposed conduct standard rules don’t help. A unique “authority” in Washington suggests so. This authority is not based on ideology or partisanship – a unique occurrence in Washington. It’s based on common sense.
Common sense demands that calling the SEC disclosure confusing understates the problem. Driving in rush-hour traffic in a foreign city is confusing. Understanding legally cleansed language that makes brokers and advisors seem the same – or brokers better – is a challenge for even attorneys. For others, it is wishful thinking. The disclosure is incomprehensible.
Read the full article here by Knut Rostad, Advisor Perspectives
