In her remarks before the Consumer Federation of America Thursday, SEC Chairman Mary Schapiro reiterated her commitment to creating a “strong fiduciary standard” for all securities professionals. She also called for clear point-of-sale disclosures, a re-assessment of 12b-1 fees, a closer look at target date funds and self-funding for the agency.
Shapiro addressed the concerns of some segments of the profession that the creation of a uniform industry-wide standard would result in it being “weakened” or watered down. “To be effective, the fiduciary duty needs to be meaningful and uniform across all securities professionals. It cannot be weakened or diluted just so that it can be applied broadly,” she said.
She went on to say that a fiduciary duty alone will not protect investors. An effective oversight regime would be needed. She continued: “Securities professionals, regardless of what their business card says, should be subject to the same standard of conduct, the same licensing and qualification requirements, the same disclosure obligations, the same regulatory and recordkeeping standards and a robust examination and oversight schedule.”
Shapiro also recommended that investors receive “clear, simple” disclosures at the point of sale about the products and services being offered, the compensation being received by the professional and any conflicts of interest he or she might have. She anticipated “pushback” from the industry “related to cost and convenience,” on the point-of-sale disclosure issue. “But anything worth doing is not easy,” she said.
In addition, she called for rethinking 12b-1 fees, which were first permitted in 1980. “There is a need for more fundamental change than merely disclosure reforms and a name change,” she said. “We must critically rethink how 12b-1 fees are used and whether they continue to be appropriate,” she continued, as most investors do not know they are being deducted nor who or what service they are meant to compensate. She has asked the staff to make a recommendation on 12b-1 fees for 2010. Of course, the SEC has made promises to address 12b-1 fees many times before, with no results.
Shapiro requested that SEC staff present recommendations on target date funds in early 2010. Widely used in 401(k)s, these have lately been criticized for numerous reasons: high expense ratios, a tendency for target date fund families to include proprietary funds, the failure of target-date fund managers to invest their own money in these funds and a lack of transparency about holdings and investment strategies. They have attracted special attention after many of them got slammed in last year’s market downturn, even for those shareholders who were on the verge of retirement.
Finally, Shapiro called for the SEC to become self-funded through fees collected rather than through government allocations, which are too meager for it to operate effectively, she said. The amount of fees the agency collects far surpasses the budget that Congress awards the SEC each year, she says.