Get Over It! Nothing is Perfect, Says Cetera to SEC Best Interest Critics
Cetera Financial Group is coming to the defense of the SEC over its much-criticized Customer Relationship Summary in its proposed Regulation Best Interest by saying critics of the disclosure form should just get over it because nothing is perfect.
“A large number of the comments regarding Form CRS found fault with it, for many different reasons. Some considered it too short, some too long, some found it too complicated and others thought it too simplistic. We offer the following perspective: Nothing is perfect,” Mark Quinn, San Diego, Calif.- based director of regulatory affairs at the independent financial advisor network, says in a comment letter submitted to the SEC last month.
“To expect complete agreement from the universe of parties who have views on standards of conduct for financial advisers, especially with respect to anything that represents such a substantive change to the existing regulatory regime as Form CRS, is not realistic,” he adds.
Quinn points out that most of those who found fault with Form CRS have not offered specific ways to improve it.
Contrary to the widespread criticism, Quinn says Cetera finds Form CRS to be usable, understandable, appropriate in length and designed to meet the goal of prompting investors to ask questions that would fill in gaps in their knowledge and understanding about their relationship with a financial professional.
Form CRS is meant to make it clear to investors whether they are dealing with an investment advisor or a broker. It requires an explanation of the principal types of services offered; the legal standards of conduct that apply to the investment advisor or the broker-dealer (whichever relationship applies); the fees a client might pay; and certain conflicts of interest that may exist.
The SEC released last month the results of its own investor testing of Form CRS and the results showed several communication failures with investors. For example:
- Interview discussions revealed there were areas of confusion, including differences between types of accounts or financial professionals
- Opinions of survey respondents with less education or less investment experience were less positive
- Most of the survey respondents said Form CRS is too long
- Perceived to be most helpful is the information on fees and costs in Form CRS -- yet the same information is also considered the most difficult content to understand
- Interview participants said the “Fees and Costs” section is overwhelming, and they also had difficulty reconciling the information provided in the “Our Obligations to You” section and the “Conflicts of Interest” section.
The RAND Corporation, which conducted the investor testing for the SEC, surveyed more than 1,800 individuals across the country online and did “qualitative in-depth interviews” in Denver and Pittsburgh via independent market research firms.
Cetera commissioned its own investor testing of Form CRS. Woelfel Research surveyed 803 respondents online.
The following are some of the significant findings cited by Cetera:
- Nearly 84% of respondents said they knew more about their financial advisor after reviewing Form CRS than they did before
- More than 60% of respondents said Form CRS gave them the information necessary to decide which type of relationship (brokerage or advisory) was right for them
- More than 75% of respondents stated each topic in Form CRS is described clearly.
Quinn says the results of the Cetera-commissioned survey “clearly” establish that Form CRS “represents a very good start with respect to a relationship disclosure document.”
Quinn cautions the SEC and critics of Form CRS “not to allow the perfect to be the enemy of the good,” noting that reaching consensus “is not realistic in the short term.”
At a meeting of the SEC’s Investor Advisory Council in June, industry and consumer groups critiqued Form CRS, opining on how it would further confuse investors or even give them a false sense of security.
The IAC advises the SEC on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace.