Saturday, September 15, 2018
A coalition of consumer groups put together a study to evaluate the effectiveness of new disclosures proposed by the SEC. In essence, the disclosures are supposed to help consumers recognize the differences between different types of financial advisers. The study found that the proposed disclosures were not particularly effective:
To begin, participants in our testing probably read the CRS in more depth than they would on their own. Despite that more in-depth reading, participants struggled throughout with sorting out the similarities and differences between the Broker-Dealer Services and Investment Adviser Services. Both the formatting and the language contributed to the confusion.
On the upside, the testing provides a useful starting point for thinking about how the initial draft disclosures can be improved. Instead of giving up on disclosure entirely, the authors argued for more work to get it right:
we believe that this report is an important first step in an iterative process designed to improve the SEC’s first published draft. This report helps to identify how typical investors read and misread, understand and misunderstand, and interpret and misinterpret efforts to communicate complex and technical concepts and information. We firmly believe that the results of our testing show that a usable document that communicates clearly and well with potential investors is a viable outcome.
The SEC should continue to work to make the disclosures more effective. It should also work to increase standards to protect investors.