In response to Regulatory Notice 10-54, FINRA received over 300 comment letters regarding its concept proposal to require broker-dealers to provide a disclosure statement to retail investors at or before the commencement of a business relationship. The proposed disclosure statement would be similar to the Form ADV disclosures required of investment advisers.and evaluating the merit of these tips.
Although the general spirit of the proposal garnered some support, industry groups and representatives raised concerns about, among other things, the timing of the proposal, the content of the disclosure statement, and its application to non-retail broker-dealers. Many noted the proposal’s premature timing in light of multiple disclosure proposals and studies currently under consideration by the SEC and Department of Labor. Commenters emphasized that regulators need to coordinate their actions to avoid the risk of inconsistency and duplicating regulatory requirements.
Commenters also questioned the breadth of disclosures contemplated by the proposal, cautioning FIN RA to be mindful that “more” disclosure does not necessarily mean “better” disclosure. Some commenters believed that the disclosures would merely add to the overload of information provided to investors rather than increase their ability to make informed investment decisions.
Some in the industry suggested FIN RA should survey investors on disclosure needs while others recommended a layered approach to disclosure in which high level information is given upfront and more detailed information is available on the broker-dealer’s website. Still other commenters advocated exempting or excluding from the scope of the proposal principal underwriters of mutual funds and wholesalers distributing variable insurance products because they generally do not deal directly with retail investors.
At this time, FIN RA has not taken any action to issue a formal rule proposal.