While the Department of Labor (DOL) fiduciary rule, designed to protect retirement investors from conflicted advice and excessive fees hangs in the balance, Securities and Exchange Commission (SEC) chairman Jay Clayton has said the regulator will take other steps to make sure investors don’t overpay for funds and can identify advisors who have been barred from the industry.
Clayton, in a speech in New York at the Practising Law Institute, highlighted how costs can be hidden from investors.
He gave examples of investors being placed in share classes that are not the cheapest, advisors paying fund expenses with fund assets rather than with the firm’s money, and brokers secretly marking up securities prices to increase their profits.
‘Our enforcement division will continue to be active in pursuing cases where hidden or inappropriate fees are at issue, but we also are exploring whether more can be done to clarify fee disclosures made to retail investors and, thereby, deter and reduce the opportunities for misbehavior,’ said Clayton.
He added that investors needed to have the tools to protect themselves from unscrupulous advisors.
‘Clearly, there are fraudsters in our marketplace who are seemingly unafraid of, or undeterred by, the risk of being caught,’ he said.
‘The SEC can target the underlying conduct of those fraudsters – and we do – but we also can and should arm investors with information that makes it more difficult for them to be defrauded … we are creating a website that will contain a searchable database of individuals who have been barred or suspended as a result of federal securities law violations.
'This resource is intended to make the prior actions of repeat offenders and fraudsters more visible to investors.’
Clayton said this database would be especially useful when advisors who have been barred move from the RIA space to the unregistered space.