Investing has become increasingly important for many Americans. We’re living longer and have more responsibility to fund our own retirements and other expenses, such as college education. For many, investing can be intimidating. We’re worried we’ll make the wrong choices, we’ll be victims of fraud, or think we just don’t have the time or the money. As I’ve traveled the country speaking to Main Street investors, the two most common things I hear are: (1) I wish I started investing earlier and (2) I wish I knew more about investing.
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One way to address these concerns is to work with a financial professional. But that raises an important question: How do I choose one? Early in my time at the SEC, it became clear to me that we needed to do more to help you with that question.
There are two different types of SEC-regulated financial professionals: brokers and investment advisers. They offer different services, charge different fees, have different conflicts, and have different legal obligations towards you. But those important differences have not been well understood by many. Equally important, the legal obligations brokers owed to their customers fell short of what I believe most Main Street investors would expect.
I’m proud to say that this week, my colleagues at the SEC and I issued a set of reforms designed to better serve our Main Street investors when they work with a financial professional. These reforms – which are decades in the making will (1) enhance investor protection and (2) preserve and promote consumer access to the services offered by brokers and investment advisers in terms of both choice and cost. This is important. Approximately 43 million American households are invested in our markets.
To address confusion and help investors make informed choices, we are requiring brokers and investment advisers to provide you with a two-page form that discusses in plain English the services they provide, how they are paid, that they have different conflicts and their legal obligations to you.
For some investors, a broker is the right choice, while for others an investment adviser will be the right choice. And in some cases, a combination may be a good choice. In fact, many firms are registered as both. We at the SEC want you to be armed with the information to ask the right questions and make the choices that are best for you.
We are going beyond requiring clarity. We also are requiring brokers to act in their customers' best interest. Put simply, we mean that they cannot put their own interests ahead of yours. In addition to this general obligation, brokers must satisfy specific obligations, including care, disclosure and conflict mitigation requirements. We also are clarifying and reiterating our long-standing views of the fiduciary duty investment advisers owe to their clients.
We know that many Americans are satisfied with the investment services they are currently receiving. We also know that the opportunities available to retail investors in America are broader, less costly and, in the vast majority of cases, come with better disclosure and more protection than anywhere else in the world. The Commission’s actions yesterday build upon, enhance and clarify the existing requirements for brokers and investment advisers in a manner that preserves and improves the choices you currently have to get the type of help you need with your investments, and to continue to be able to pay for it in a way that makes sense for you.
Our website – investor.gov – has resources, including upcoming videos, to help you choose whether to work with a broker or investment adviser. It also has a free and simple search tool to find out if your broker or adviser is registered, what licenses the person holds, and if he or she has had customer complaints or prior disciplinary history. I encourage you to do your homework before making this decision.
If you need a conversation starter with your financial professional, ask my favorite question: How much of my money is going to fees and costs, and how much is going to work for me?
Jay Clayton is Chairman of the Securities and Exchange Commission.