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March 9, 2018

The SEC’s Investor Advisory Committee: Part I

By Lev Bagramian

When we launched this blog, we promised that we would pay attention to the work of the federal advisory committees.  Here, we provide an important backgrounder on these committees at the SEC, and later, we’ll analyze some of their specific recommendations.

Federal advisory committees can, in principle, offer a broad range of helpful perspectives and specialized expertise to financial regulators tasked with overseeing our markets.  One of those committees is SEC’s Investor Advisory Committee (IAC), created by the Dodd-Frank Consumer Protection and Wall Street Reform Act of 2010.  The Act mandated that the IAC should “advise the Commission on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and on initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace.”  The Dodd-Frank Act also authorized the IAC to submit findings and recommendations for review and consideration by the full Commission.  The IAC is to meet at least twice a year, but in practice, since its charter was adopted by the Commission in 2012, it has met on average four times a year.

By statute, the membership of the IAC must not be fewer than 10 and not more than 20.  The membership must include the following representatives as permanent members: the SEC’s Investor Advocate (currently the thoughtful and careful Rick Fleming), a representative of a State securities commission, and a representative of the interests of senior citizens.  More generally, its membership should be composed of individuals who represent the interests of individual equity and debt investors, including investors in mutual funds; or represent the interests of institutional investors, including the interests of pension funds and registered investment companies; or are knowledgeable about investment issues and decisions; and each must have reputations of integrity.  Over-the-years, its members have included prominent investor and consumer advocates like Barbara Roper of the Consumer Federation of America, former SEC Commissioner Elise Walter, and current SEC Commissioner Hester Peirce.

As currently constituted, the IAC has three subcommittee: Investor as Owner Subcommittee, Investor as Purchaser Subcommittee; and Market Structure Subcommittee.  Since IAC’s first meeting in June 2012, these subcommittees have offered some ground-breaking recommendations, including the recommendation “that personalized investment advice to retail customers should be governed by a fiduciary duty, regardless of whether that advice is provided by an investment adviser or a broker-dealer;” that the SEC should promulgate rules to allow for a universal proxy;  that the SEC should explore ways to improve disclosures related to mutual fund costs; and that the SEC should address problems in the fixed income markets.

SEC Commissioners are usually present, at least during the opening segment of the IAC meetings.  Over the years, they have made statements that have guided the work of the IAC but usually they are there solely in listening mode.  Though later, some Commissioners have at times quoted certain IAC recommendations in hopes of spurring their other colleagues at the Commission to action.

In our next installment, I will detail some of the key recommendations and analyze their impact on the Commission’s agenda, and outline the current workload of the IAC and the implication of that work for investors and the integrity of our markets.

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