In mid-January, the SEC requested comments from the public on financial literacy and investor disclosure issues.
The Dodd-Frank Act mandated that the SEC conduct this study to identify investors' levels of financial literacy and come up with ways of improving disclosure materials pertaining to investment products, services and providers.
They also must identify the most effective ways to "increase the transparency of expenses and conflicts of interests in transactions involving investment services and products," according to Section 917 of the Dodd-Frank Act.
Maybe increasing investor financial literacy will cut down on conflicts of interest as demanding that providers of financial advice adhere to a fiduciary standard is turning out to be a nonstarter.
The official rule imposing a fiduciary standard on brokers has been shelved while the SEC studies the issue, according to a Jan. 12 story on Bloomberg.com, "Broker fiduciary rule delayed by cost-benefit analysis, SEC says."
The delay, the story reports, is to ensure that the fiduciary rule does not get struck down in court as the proxy access rule was last summer with the admonishment that the Commission had failed to account for the costs to businesses.
SEC chairman Mary Schapiro wrote a letter to Representative Scott Garrett explaining the progress in analyzing the cost of instituting a fiduciary standard.
Schapiro’s letter was in response to a December letter from Rep. Scott Garrett, R-N.J., chairman of the House Financial Services subcommittee that oversees the agency, requesting data on the progress the agency has made in analyzing the costs and benefits of a proposal.
Garrett, in his Dec. 21 letter, said that a hearing held by his subcommittee on the issue in September produced a "consensus view that there is currently no evidentiary basis for proposing new standard-of-conduct regulations."
Despite study after study showing that investors don't understand fiduciary standards and fail to understand that brokers have no professional obligation to disclose conflicts of interest or act in a manner that is in the client's best interest, the House Financial Services subcommittee says there isn't a problem with the current standard.
The SEC will be taking public comments for 60 days on the issue of financial literacy.
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