Investment and Securities Industry


Traditional pensions largely have been replaced with 401(k)s and other retirement plans in which employees contribute to individual accounts. More and more traditional defined-benefit retirement plans are being replaced with defined-contribution retirement plans. As a result, stocks and other investments have become a critical component of an individual’s retirement assets. This gives individual investors greater control over their retirement. However, it places greater responsibility on them to make appropriate investment choices. More than ever, investors need objective advice and information. They also need safeguards against abusive practices. 

As the number of first-time investors grows and more people face greater decision-making responsibility, the need for expert advice increases. So does the potential for investor abuse or fraud. The variety and increasing complexity of investment products can be intimidating and confusing. Yet, account statements and written materials are often indecipherable. In addition, investors often lack objective advice and information. These materials fail to disclose key information to help investors assess the risk and cost of investment products. And conflicts of interest remain a problem. Industry practices in areas such as broker compensation, mutual fund governance, and audit, accounting, and reporting standards have created actual or potential conflicts of interest. This makes it more difficult for investors to obtain objective advice and information. It can, subsequently, allow financial industry professionals to profit at their expense. 

Rapid growth in investment activity has severely taxed the resources of the Securities and Exchange Commission and state securities regulators. 

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 increased the amount that prompts the Security and Exchange Commission (SEC) registration of an investment advisor from $25 million to $100 million in assets under management. As a result, there are now more than 17,000 state-registered investment advisors and over 13,000 investment advisors registered with the SEC. 

The National Securities Markets Improvements Act of 1996 preempts many state securities requirements but maintains states’ ability to address fraudulent activities that elude federal law enforcement. 

In 2020, the National Association of Insurance Commissioners (NAIC) adopted a revised model rule on annuities and suitability, in line with the SEC’s Regulation Best Interest (Reg BI). This rule establishes a “best interest” standard but remains short of a fiduciary standard. New York has established, and other states are considering, standards stronger than the NAIC model. The previous model was adopted in nearly every state. 

The Financial Industry Regulatory Authority, the securities industry’s self-regulatory body, also has rules governing recommendations of investment products, including variable annuities. 

States play an important role in securities regulation, particularly with respect to addressing fraudulent activities. The Uniform Securities Act is a model law to advance consistency among states, clarify state and federal regulation, and increase the efficiency of regulation and enforcement activities. 

Speculative asset classes: Without regulatory supervision, it is much easier to sell general investors risky assets that promise high returns but often result in substantial losses. As experience with certain cryptocurrencies has shown, unregulated assets may be mismanaged, inaccurately described, or even fraudulent. Even if only certain types of unregulated assets or the platforms on which they are traded are abusive, it can be very difficult for general investors to tell the difference.  



Informed choice

Consumers should receive accurate, timely, and easily understood disclosures of risks and costs. 

Investor-protection laws

Investor-protection laws should be strengthened and adequately enforced. The Securities and Exchange Commission and state regulators should be adequately funded. This will ensure the safety of securities markets and fairness in the sale and marketing of investment products. 

Investors should have a greater ability to obtain adequate redress for violations of the law. This should include recovery of irreplaceable assets lost because of fraud, negligence, incompetence, or other practices. 

States should enact the Uniform Securities Act. 

Speculative asset class regulation

New types of unregulated investment products that are available to the public, such as cryptocurrency, should be federally regulated to ensure they are structured and marketed appropriately so investors can make informed decisions. 

Found in Investment and Securities Industry