In the aftermath of Enron, the Financial Crisis, and the Wolf of Wall Street, you might think that regulators who are charged with protecting small retail investors as much as the markets themselves would sharpen up the rules and regulations governing the financial industry. Unfortunately, a series of announcement recently opined about in the New York Times suggests that small investors are more, not less, vulnerable to Wall Street’s predations than they’ve ever been.
SEC Toothless in Reforming Financial Industry to Protect Investors
According to the piece, two key movements within the legislation of the financial industry have left small investors with fewer protections than they’ve had in recent memory. In 2010, Congress passed the Dodd-Frank Act, which was intended to curtail too-big-to-fail banks and increase protections and safeguards for investors and consumers. The act included provisions for the SEC to impose any reforms that might insulate everyday investors from financial industry sales agents and brokers with an eye on their money.
Unfortunately, almost ten years later, the SEC has done almost nothing to improve the position of Mom and Pop investors. After years of revisions and public commentary, the SEC failed to push through reforms that raise the standard of professional fidelity for financial advisors from the so-called “suitability standard” to the more rigorous “best interest standard.”
The suitability standard asks that brokers merely match the investor’s profile and objectives with the investments themselves, whereas the best interest standard forces investment advisors to choose products that are strictly in the investor’s best interest, even at the expense of the advisor’s best interest (hence the name).
Trump Admin Says No More Securities Class Actions
Last month, the Trump appointed SEC Commissioner, Hester Peirce, suggested that she supports companies seeking to prevent shareholders from bringing class-action lawsuits. She told an online magazine that she “absolutely” believes that public companies should be able to demand that investors arbitrate rather use the court system to bring class-action suits.
There’s a reason companies want to force investors to arbitrate. Instead of a jury of their peers, investors pushed into arbitration often face a small panel of former industry professionals who are biased toward the industry itself.