Report on 

Activities

FISCAL YEAR 2023
ABOUT THIS REPORT AND DISCLAIMER

Section 4(g)(6) of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. § 78d(g)(6), requires the 

Investor Advocate to file two reports per year with the Committee on Banking, Housing, and Urban Affairs 

of the Senate and the Committee on Financial Services of the House of Representatives.1 The two reports 

are the mid-year Report on Objectives covering the forthcoming Fiscal Year and the end-of-year Report on 

Activities covering the preceding Fiscal Year.

A Report on Objectives is due no later than June 30 of each year, and its purpose is to set forth the objectives 

of the Investor Advocate for the following Fiscal Year.2 A Report on Activities is due no later than December 

31 of each year.3 The Report on Activities describes the activities of the Investor Advocate during the 

immediately preceding Fiscal Year. 

Disclaimer: Pursuant to Exchange Act Section 4(g)(6)(B)(iii), 15 U.S.C. § 78d(g)(6)(B)(iii), this Report on 

Activities is provided directly to Congress without any prior review or comment from the Commission, 

any Commissioner, any other officer or employee of the Commission outside of the Office of the Investor 

Advocate or the Office of Management and Budget. This Report on Activities expresses solely the views of 

the Investor Advocate. It does not necessarily reflect the views of the Commission, the Commissioners, or 

staff of the Commission, and the Commission disclaims responsibility for this Report on Activities and all 

analyses, findings, and conclusions contained herein.
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | i

CONTENTS

MESSAGE FROM THE INVESTOR ADVOCATE . . . . . . . . . . . . . . . . . . . . . . . .  

FISCAL YEAR 2023 SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

INVESTOR ENGAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

RESEARCH AND INVESTOR TESTING.

ADVOCACY FOR INVESTORS. 

OMBUDS’ REPORT.  

END NOTES. 
“ As innovation in financial 

products and services continues to 

accelerate, we believe our approaches to 

investor protection will also need to innovate 

in order to keep pace.
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 1

MESSAGE FROM THE 

INVESTOR ADVOCATE

IN MY FIRST MESSAGE AS INVESTOR 

ADVOCATE in June of this year, I highlighted my 

priorities for the Office of the Investor Advocate 

(OIAD):

 Improve our service to retail investors seeking 

assistance; 

 Increase our engagements with investors and 

their representatives; and 

§ Enhance our research to identify evidence-based

insights about retail investors. 

The purpose of each of these goals is to better 

perform the functions that Congress has assigned 

to OIAD, and ultimately, to better serve the 

investing public.

In this Report on Activities on Fiscal Year 2023, I 

would like to update you on our progress on these 

priorities, as well as share some of what we have 

learned through this past year.

SERVICE TO INVESTORS 

The most important function of the Office of 

the Ombuds is to address problems that retail 

investors may have with the Securities and 

Exchange Commission or with the self-regulatory 

organizations that the Commission oversees. In 

2023, we managed 2,605 matters and responded 

to 2,828 additional contacts through the Ombuds’ 

Office. This represents a greater than 500% 

increase in matters initiated by investors, and a 

more than 1,000% increase in contacts since the 

establishment of the Ombuds’ Office in 2015. 

Separately, in the past fiscal year, the Investor 

Advocate received almost 900 investor inquiries 

which were responded to by staff. 

As surprising as the growth may appear, it is 

important to note that these numbers do not 

represent a spike in inquiries and complaints. 

They represent a 

continuous progression 

in communications 

from individuals who 

are seeking assistance 

on a variety of issues 

over the last nine fiscal 

years. We observe that 

the number of investor 

communications with the 

Office of the Ombuds has 

increased over the same 

time period that there has been a rapid growth in 

new investors, new products, and new investing 

platforms. We believe that, as the number of 

retail investors continues to grow, along with the 

number and complexity of investment products 

and strategies available to retail investors, so will 

the demand for services from the Ombuds continue 

to grow. More importantly, the expanding retail 

investment landscape is also increasing the need for 

improved communications between regulators and 

the public.
2 | OFFICE OF THE INVESTOR ADVOCATE

ENGAGEMENTS WITH INVESTORS

To effectively perform its functions, the Office of 

the Investor Advocate actively seeks input from 

a broad variety of investors. In Fiscal Year 2023, 

we doubled the number of investor engagement 

activities that we hosted or substantially 

participated in, compared to the prior fiscal year. 

These engagements were designed to obtain 

feedback from investors, their representatives, and 

associated stakeholders on policy-related topics. 

Our report details some of our most productive 

engagements, and we intend in Fiscal Year 2024 

to expand our in-person meetings with the public. 

In particular, we hope to continue our successful 

partnership with federal and state regulators in 

efforts to hear from retail investors about their 

investment experiences. 

RESEARCH ABOUT INVESTORS

In Fiscal Year 2023, the Office of the Investor 

Advocate initiated and completed two significant 

research projects: one to study registered 

index-linked annuities (RILAs), and investors’ 

understanding of these complex products, and 

another to evaluate mandatory arbitration clauses 

in investment advisory agreements. Our purpose 

in pursuing these and other research projects is 

to inform our policy recommendations whenever 

possible by providing objective, evidence-based 

insights about investors. As a result of our research 

in Fiscal Year 2023, we have included in this 

report several recommendations that our research 

indicates would benefit retail investors. 

To summarize our findings and recommendations 

with regard to RILAs, we rarely have examined 

a more complex retail investment product. 

Congruent with the complexity of the product, 

we believe an enormous level of effort on the part 

of providers, regulators, and investors is needed 

to ensure RILAs are purchased by investors 

who can benefit from them. More broadly, we 

are concerned that the Commission’s historical 

approach to disclosures may prove insufficient, 

not just for RILAs, but for many highly complex 

financial products. As innovation in financial 

products and services continues to accelerate, we 

believe our approaches to investor protection will 

also need to innovate in order to keep pace.

With regard to mandatory arbitration clauses, we 

are concerned that a number of characteristics of 

these clauses in advisory agreements are not in the 

best interest of retail investors. We make a number 

of recommendations to help promote a fairer, more 

balanced framework for arbitrations between 

advisers and their retail clients. In light of our 

concerns, we also strongly encourage investors to 

learn about the differences between arbitration and 

litigation, and to ask appropriate questions of their 

advisers where mandatory arbitration clauses are 

included in advisory agreements.

The Office of the Investor Advocate takes seriously 

the role it has been given in promoting the interests 

of investors, and we are grateful for the privilege 

of serving the investing public. As we approach the 

tenth anniversary of the establishment of the Office 

in 2024, we look ahead to further improving the 

value of our contributions to the Commission and 

to the service we provide investors.

Respectfully Submitted,

CRISTINA BEGOÑA MARTIN FIRVIDA

Investor Advocate 
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 3

FISCAL YEAR 2023 

SUMMARY

142

ENGAGEMENT 

ACTIVITIES

873

INVESTOR 

INQUIRIES

2,605

INVESTOR SUBMISSIONS 

to the Ombuds

11 DATA 

COLLECTION 

ACTIVITIES completed

38

RULEMAKINGS and SRO FILINGS 

reviewed

127
4 | OFFICE OF THE INVESTOR ADVOCATE

INVESTOR 

ENGAGEMENT

THE OFFICE OF THE INVESTOR 

ADVOCATE OIAD is statutorily mandated to 

assist retail investors, identify problems that 

investors may have, analyze the potential impacts 

on investors of rules or regulations, and make 

proposals to the Commission to promote the 

interests of investors.4 OIAD’s direct engagement 

with investors and their representatives support 

each of these mandates.

In Fiscal Year 2023, OIAD hosted or participated 

substantially in 142 investor engagement activities 

(Figure 1) designed to obtain feedback from retail 

investors on policy-related topics, and engaged 

with a variety of investors to help ensure their 

interests were represented across the Securities 

and Exchange Commission (SEC or Commission). 

OIAD has led various initiatives to engage directly 

with investors and integrate their interests into all 

of its functions, including:

 Meeting regularly with consumer and investor 

advocacy groups where retail investors are a 

main focus area;

 Keynoting the North American Securities 

Administrators Association’s (NASAA) Senior 

Issues Committee annual conference, and 

meeting with older investor advocates at the 

state level;

 Facilitating a meeting with the Investor 

Advisory Committee on retail investor issues, 

including with leading industry and advocacy 

organizations;

 Engaging and collaborating with federal 

agencies, state regulators and industry partners, 

and international counterparts on issues related 

to investors, such as, the Consumer Financial 

Protection Bureau (CFPB); the Federal Trade 

Commission (FTC), the Departments of 

Veterans Affairs (VA), NASAA, the Securities 

Investor Protection Corporation (SIPC), and 

the Canadian Investor Protection Fund (CIPF), 

among others;

 Hosting a large public roundtable with NASAA 

and State partners to hear directly from 

investors; convening discussions with Financial 

Institutions Reform, Recovery and Enforcement 

Act of 1989 (FIRREA) agency Ombuds to 

address investor issues;5 and

FIGURE 1. Number of Engagements

FY 2022

72

FY 2023

142

FY 2021

88

FY 2019

36

FY 2020

41
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 5

§ Envisioning and initiating annual consultations

with the SEC Division of Examinations, to 

include direct investor input into the Exam 

Priorities for Fiscal Year 2024.

Throughout Fiscal Year 2023, OIAD actively 

sought input from a broad range and variety of 

investors—including individual retail investors, 

smaller and regional investors groups and 

advocates, public and private pension funds, and 

other small and large money managers—as well 

as regulatory counterparts, non-profits, academic 

experts, and consumer groups. 

Notably, in July 2023, OIAD conducted a large 

public roundtable jointly with NASAA and the 

Wisconsin Department of Financial Institutions 

in Madison, Wisconsin. At the roundtable 

(which was also livestreamed on sec.gov) 

investors, investigators, and regulators shared 

their experiences of securities fraud and engaged 

in discussions related to identifying fraud and 

avoiding suspicious investments directly with senior 

Commission staff and Commissioner Mark Uyeda. 

In September 2023, OIAD joined the Secretary 

of Veterans Affairs, the Honorable Denis 

McDonough, and other federal financial regulators, 

at the Joseph Maxwell Cleland Atlanta Department 

of Veterans Affairs Medical Center for a panel 

discussion on retail investor-related topics and 

investor advocacy. 

In addition, OIAD supports the SEC Investor 

Advisory Committee (IAC), and the Investor 

Advocate participates in the IAC as a statutory 

member.6 The IAC is one of two Commission 

advisory committees. It holds public meetings to 

discuss investor-related topics and is authorized 

by statute to make formal recommendations to 

the Commission. The IAC includes the following 

four subcommittees and one working group to 

help formulate its policies and recommendations: 

1) Investor-as-Owner Subcommittee; 2) Investoras-Purchaser Subcommittee; 3) Market Structure 

Subcommittee; 4) Disclosure Subcommittee; and 

5) Access and Inclusion Working Group. 

OIAD continues to provide broad administrative 

and organizational support, and technical 

assistance, upon their request, to the IAC. In Fiscal 

Year 2023, this included organizing four IAC 

public meetings, including the first in-person IAC 

Meeting since before 2021, and facilitating six 

IAC Recommendations (Figure 2). 

FIGURE 2. FY2023 Investor Advisory Committee Activities

6

134

4

Recommendations

Subcommittee and Other Meetings

Public Meetings
“ POSITIER aims to provide deep insight into how 

investors and other stakeholders interact with the investment 

marketplace and how they are affected by SEC policy.
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 7

THE POLICY-ORIENTED STAKEHOLDER 

AND INVESTOR TESTING for Innovative 

and Effective Regulation (POSITIER) initiative 

was launched in 2017 to provide a toolkit to the 

Commission and OIAD for understanding investors 

and increasing the efficacy of policymaking 

activities.7

POSITIER aims to provide deep insight into how 

investors and other stakeholders interact with the 

investment marketplace and how they are affected 

by SEC policy. POSITIER researchers enable OIAD 

and the SEC to more thoroughly:

1. “Identify areas in which investors would 

benefit from changes in the regulations of the 

Commission or the rules of self-regulatory 

organizations”;8

2. Conduct pre-adoption testing of potential 

policies, identifying areas in which investors 

would benefit from changes in regulation 

and allowing the Commission to “analyze 

the potential impact on investors of proposed 

regulations of the Commission. . . proposed 

rules of self-regulatory organizations . . . and 

. . . to the extent practicable, propose to the 

Commission changes in the regulations”;9

3. Conduct “retrospective analysis of rules” to help 

ensure that policies are working as intended;10

4. Study investor behavior and outcomes to 

“identify problems that investors have with 

financial service providers and investment 

products”;11 and

5. Generate evidence for better organizational 

management and overall efficacy, particularly 

in the sense of “outcome” indicators of 

performance.

To accomplish these aims, POSITIER engages in 

high-quality, interdisciplinary research, focusing on 

questions and outcomes that provide meaningful 

impact on investors’ lives. We work on long-term 

research projects of fundamental importance and 

with policymakers on applied projects to affect 

policies that are under consideration. In all our 

endeavors, we seek to provide insight in a costeffective and rapid manner, so that insufficient time 

and money are not rationales for forgoing research 

and testing. 

POSITIER’s productivity is exceptional. Since 

POSITIER’s founding in June 2017, we have 

conducted 51 survey and experimental projects, 

15 qualitative data collection projects, and 

several analyses of market data. Our research 

has been cited in multiple rulemaking proposals, 

thereby having a direct impact on the investing 

public. Additionally, we have engaged in thought 

Qualitative

15

Quantitative

51

RESEARCH AND 

INVESTOR TESTING
8 | OFFICE OF THE INVESTOR ADVOCATE

leadership by disseminating our work to policy 

and academic communities, increasing our impact 

by encouraging others to serve the interests of 

investors through advocacy, research, or direct 

outreach. In Fiscal Year 2023, highlights of our 

research group included:

 Completion of a highly innovative and 

rigorous research project on registered 

index-linked annuities (RILAs) to inform a 

rulemaking proposal. This project featured 

a fruitful partnership with the Division of 

Investment Management, leveraging the 

technical knowledge of that division while 

maintaining critical independence of OIAD’s 

research team. The project was prompted by a 

directive from Congress to engage in investor 

testing in conjunction with a regulatory 

proposal regarding RILAs.12 In completing 

the project, POSITIER conducted formative 

research to better situate investor testing, 

integrating analyses of market data and 

marketing materials. The project also helped 

demonstrate the potential and the efficacy of 

integrating independent and highly credible 

rapid-cycle investor research into agency 

policymaking. The report was heavily cited in 

the Commission’s proposed rule.13

 Final publication of our research on mutual 

fund visual aids in a special issue of the 

Journal of Association for Consumer 

Research, which concentrated on financial 

decision-making.14 This research was reviewed 

in detail in OIAD’s Fiscal Year 2022 Report 

on Activities.15 We believe that publication in 

a highly regarded peer-reviewed journal with 

broad appeal may increase the impact of this 

research throughout the federal government. 

Agencies working in similar consumer-facing 

domains will be able to draw lessons from 

this research and apply them in the context of 

consumer protection, and researchers interested 

in influencing policy may use the foundations 

laid in this publication to undertake additional 

research that benefits policymakers and 

investors. 

 Promotion of better evidence models across 

the federal government through a panel 

at the 2022 Association for Public Policy 

Analysis and Management (APPAM) 

conference. APPAM is a premier national 

conference for research on public policy with 

two to three thousand attendees each year. 

Our panel discussed POSITIER’s research 

and strategies for using evidence to promote 

informed policymaking, including lessons that 

government and academic researchers can use to 

improve the transmission of evidence to policy.

§ Elevation of investor-related research in

multiple communities, including through the 

Boulder Summer Conference on Consumer 

Financial Decision Making, the Association 

for Psychological Science, and the University 

of Chicago American Marketing Association’s 

Marketing and Public Policy Conference. This 

outreach helps us thoroughly vet our research 

so that we can be confident in our findings, 

promote additional inquiry on investor issues, 

and aid other entities that may use our research 

to help promote investor protection. 

As always, there is much more that could be 

done to serve the needs of investors and the 

Commission. Looking forward, we will continue 

to identify and analyze programs and policies 

that enable the public to make better investment 

decisions and reach their goals and will find 

avenues for POSITIER to collaborate with SEC 

staff on high-impact policy research. We will 

continue to examine interactions among individual 

investors, their decision context, key household 

factors, and macroeconomic trends. The rest of 

this year’s report on investor testing presents results 

from several research projects, including insights 

for investors. 
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 9

RESEARCH HIGHLIGHTS FROM THIS YEAR 

REGISTERED INDEX-LINKED 

ANNUITIES (RILAs)

What Are RILAs and How Do They Work?

RILAs are tax-deferred retirement savings vehicles 

that advertise potentially reduced market risk 

relative to investing directly in financial markets. 

Like many other retirement savings vehicles, 

money is first added to the overall vehicle and 

then the investor allocates that money to specific 

investments. Unlike many other retirement 

savings vehicles, because of their structure, 

withdrawal penalties, and other features, RILAs 

are complex, long-term, and illiquid products that 

typically require investors to make a significant 

number of complicated decisions with perhaps 

unintuitive consequences. 

Investors fund purchases of a RILA contract 

through premium payments; the initial minimum 

amount required to purchase a RILA varies 

substantially from $10,000 to $25,000.16 Premium 

payments and investment earnings are allocated 

by the investor to investment options. These 

investment options are shorter-term investments 

that often last 1, 3 or 6 years (a period typically 

referred to as the “investment term” or “term”); as 

such, these investment options may not individually 

last as long as the RILA contract itself. Thus, the 

investor may need to pick investments several times 

over the life of the contract.

Investment options track the performance of an 

index (e.g., the S&P 500 PR index, which tracks 

the S&P 500’s price returns but not dividends). 

Investment options typically carry “insurance 

features” that can protect the investor against 

certain losses but may also limit investment gains. 

Due to the complexity of RILA products, including 

the insurance features described more fully below, 

there may be hundreds of possible investment 

options for an investor within a single insurance 

company’s RILA contract. 

RILAs are structured in two phases: (1) an 

accumulation phase, during which the investor puts 

money into the contract and invests in one or more 

investment options that track the performance of 

an index, followed by (2) an annuitization phase, 

during which the assets are turned into a stream of 

payments to the owner or returned to the investor 

in a lump sum. 

Both RILA contracts and their investment options 

typically have significant financial penalties for 

investors that greatly limit investors’ liquidity 

on the investments. Three of the most common 

financial penalties are: 

 Surrender charges: A RILA contract can define 

a “surrender charge period,” typically 6 to 

9 years long. During this period, the insurer 

charges high penalties for withdrawing money 

from the contract; penalties typically start 

around 9% to 10% and decrease over the 

surrender charge period. Often the surrender 

charge period is much longer than an investment 

option’s term, requiring investors to hold 

investments for multiple investment terms to 

avoid surrender charges. 

 Interim value adjustments and mid-term 

withdrawals: These penalties occur when 

money is withdrawn from an investment option 

before the end of its term (either when money is 

withdrawn from the contract or moved out of 

an investment option to another option while 

remaining in the contract). These penalties may 

be substantial and cause the investor to forfeit 

up to 90% of their money. Investors wanting to 

avoid these penalties may need to wait several 

years before changing indexes or withdrawing 

their money. 
10 | OFFICE OF THE INVESTOR ADVOCATE

§ Tax penalties: In addition to other tax

implications, tax penalties may arise when 

the investor withdraws money from the RILA 

contract before age 591⁄2.17 Due to this age-based 

tax penalty, a younger investor that puts money 

into a RILA may need to wait many years 

before accessing their money without penalty. 

To avoid any penalties, an investor would 

typically need to meet at least three conditions: 

(1) hold the investment through the surrender 

period; (2) withdraw money only at the end of 

each investment option’s investment term; and 

(3) hold the investment until age 591⁄2 or later 

(Figure 3). As a result, it is possible that penalty 

periods may be challenging to synchronize with 

a penalty-free withdrawal because, for example, 

an 8-year surrender charge period might expire 

in a way that does not immediately align with 

money that is invested in two consecutive 6-year 

investment options. 

Of course, individual investors may face more 

complex scenarios involving additional taxes 

or withdrawal penalties, further increasing 

the complexity of their choices. For example, 

individual investors may need to consider factors 

including the type of account in which they 

hold a RILA, how it is funded, how to best deal 

with rollovers, and how to deal with aligning 

account withdrawals with other taxes that may 

arise. There is much that investors may need to 

learn and take account of in order to make these 

products useful for meeting their goals, and there 

FIGURE 3. Potential Fees and Charges: There are Many

Tax penalties:

In certain tax deferred 

accounts if you withdraw 

funds before age 59 1/2

Interim value adjustment: 

If you withdraw funds during the 

term of an investment option

THE PUNCHLINE

There are lots of fees, so 

fee-free withdrawals can 

be tricky to manage

Surrender charges: 

If you withdraw funds 

during the surrender 

period
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 11

is much that regulators may need to study and be 

aware of in order to fulfill an investor protection 

mission. The bottom line is that to avoid charges 

and penalties, an investor likely needs to select 

and manage a RILA contract for multiple years, 

requiring the investor to make many complex 

decisions about investment options over the life 

of the contract. 

Annual fees are charged in some RILA investments, 

but the practice is not as prevalent as annual fees 

in the mutual fund industry, for example. As an 

alternative to charging annual fees, providers will 

often make money in other ways such as by earning 

more on their own investments than they promise 

to pay investors. 

Finally, it is noteworthy that the RILA investor 

is not directly invested in the index, but rather 

a promise by the insurance carrier to pay at a 

rate that aligns with the price gains in the index. 

Because of this structure, the solvency of the carrier 

may be relevant to the value of the promise. 

RILA Insurance Features

RILAs offer insurance features that potentially 

limit losses of an investment relative to the 

underlying index. At the same time, the insurance 

features also limit the potential gains. Importantly, 

the insurance features generally apply not to the 

contract as a whole, but only to a single investment 

option for a certain number of years (that is, for 

the particular investment option’s “investment 

term”). Moreover, the details of these features can 

change when investors keep their RILA contract 

for a long time; that is, each time an investor picks 

from a RILA investment menu, they may face a 

different set of investment options with a different 

set of insurance features. Investors facing a lack of 

desirable investment options at such reinvestment 

periods would need to weigh these options 

against potentially large charges and penalties for 

withdrawing money.

When making a purchasing decision, an investor 

who believes a RILA is right for them must pick 

an insurance company issuer and contract and 

choose how to allocate investment dollars to 

investment options within the contract. Investment 

options come from a menu that specifies the 

bounds on the gains and losses that are applied 

to each investment option, the duration of the 

investment term, and the underlying index to 

which each investment option will be linked. Each 

of these attributes will affect the subsequent set 

of decisions the investor faces. In other words, 

a certain provider may offer only select indices, 

and a given index may only be associated with 

a certain combination of insurance features. An 

investor may have additional considerations 

to factor into these decisions, such as their 

expectations of when they will want to withdraw 

money from the contract, as well as potentially 

complex tax implications that might affect 

decisions about how to fund a RILA or withdraw 

money from it. 

Insurance features may not provide protections 

against penalties that might be applied for early 

withdrawals or the other fees and penalties we 

discussed above. 

There are two common insurance features that 

can limit the losses for an investment option, as 

illustrated in Figure 4.

 Floors: A floor is a maximum loss (typically 

a percentage) on the investment option. For 

example, a 20% floor will protect the investor 

from any loss greater than 20%, but the 

investor bears any losses up to 20%. A 5% 

floor would provide greater protection than a 

20% floor.

§ Buffers: A buffer absorbs losses on the

investment option up to a certain point. It does 

not turn losses into gains. For example, with a 

10% buffer, the insurance company absorbs 
12 | OFFICE OF THE INVESTOR ADVOCATE

losses up to 10%, but the investor bears any 

additional losses. In other words, if the index 

decreased by 50%, a 10% buffer would reduce 

the loss to 40%. Alternatively, if the index 

decreased by 5%, a 10% buffer would reduce 

the loss to zero. A larger buffer therefore 

provides greater protection.

In general, a buffer protects the investor from 

experiencing small losses for the investment option, 

but it does not protect them completely against 

large losses. In contrast, a floor protects an investor 

from experiencing large losses but does not protect 

against small losses. When deciding on floors or 

buffers and picking a level of protection, some 

operative questions would then seem to include: 

how often do index losses exceed the buffer? And 

how often does the index incur a loss that is larger 

than the floor? 

Insurance features can also limit gains for an 

investment option:

 Caps: A cap is a maximum gain (percentage) on 

the investment option. It reduces the potential 

gains from investing in the option compared 

with investing in the components of the index 

to which it is linked (such as through an 

investment in an index mutual fund).

§ Triggers: A trigger fixes gains to a specific

rate so long as the index’s gain is over a 

corresponding trigger “threshold.” For example, 

consider an 8% trigger with a threshold of 0%. 

The RILA would return 8% as long as the index 

experiences any return above 0%, including 

above 8%. Thus, a trigger is more valuable 

when index returns are between the threshold 

and the trigger percentage (in this case, between 

0% and 8%). A trigger below the index returns 

during the investment period is likely to limit 

gains relative to the index, whereas a high 

trigger could boost gains above the returns 

experienced by the index.

In general, both caps and triggers limit the 

returns on RILA investment options when there 

are large increases in the value of the underlying 

index. However, a trigger can provide higher 

returns than the underlying index when index 

returns are modest.

A final insurance feature may act on both gains 

and losses for an investment option but may also 

act on gains or losses alone:

§ Participation rates: The participation rate

acts as a multiplier on index performance. For 

example, a two-sided 85% participation rate 

reduces both gains and losses to 85% of the 

gains or losses on the underlying index. For 

example, a gain of 10% on the index would be 

reduced to a gain of 8.5% with the RILA, and a 

FIGURE 4. Examples of Buffers and Floors in 

Different Negative Market Conditions

Insurance features that limit losses vary in how they 

mitigate negative performance. For example, this figure

illustrates that in the case where an investor has chosen 

a 10% buffer and the index decreased by 50% during 

a given investment term, the investor would only lose 

40%. As shown, a variety of outcomes are possibl

0%

-10%

-20%

-30%

-40%

-50%

-60%

Significantly 

Negative

-50%

-40%

-20%

Negative

-15%

-5%

-15%

Slightly 

Negative

-5%

0%

-5%

Index Index Option 

with 10% Buffer

Index Option 

with 20% Floor
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 13

loss of 10% on the index would be reduced to a 

loss of 8.5% with the RILA. A participation rate 

can be over 100%, in effect creating a leveraged 

investment product. An investment option with 

a participation rate may also have caps or other 

limits on gains.

KEY TAKEAWAYS FROM THE 

RILA RESEARCH

In Fiscal Year 2023, the POSITIER team conducted 

extensive research, including investor testing, to 

inform the design of a new registration form for 

RILA products.18 This research was conducted 

in collaboration with the Division of Investment 

Management. The project was prompted by a 

directive from Congress19 to conduct testing to help 

“ensure that a purchaser using the form receives 

the information necessary to make knowledgeable 

decisions”20 and supplemented that testing with 

analyses of the RILA market to better understand 

the products.

The POSITIER team conducted four separate, 

interconnected research streams to understand 

RILA products (Figure 5): 

1. Analysis of the existing market for RILA 

products—exploring potential investor returns 

under various market scenarios—to better understand the economic features of these products. 

2. Review and analysis of RILA marketing materials 

to understand issuers’ perspectives on the RILA 

value proposition and also to better understand 

how potential investors are approached.

3. Qualitative investor testing—in the form of 

1-hour one-on-one interviews with 20 annuity 

owners and shoppers—to better understand 

comprehension, barriers to understanding, 

and reactions to initial versions of the Key 

Information Table (KIT), a hypothetical 

summary disclosure that contains information 

about RILA contracts and their features and 

risks.21 Due to the in-depth and labor-intensive 

nature of this research approach, it is common 

practice to conduct a relatively small number 

of interviews.

4. Quantitative investor testing with thousands of 

consumers to assess potential form designs and 

to quantitatively assess comprehension. 

Understanding the impacts of regulations on 

consumers is important to designing effective 

policy. Bringing insights from individuals and 

households to inform policymaking discussions 

requires significant technical expertise, an 

infrastructure to collect and analyze data under 

tight timelines, and the ability to translate research 

findings to policymakers. The POSITIER team 

engaged with the topic of RILAs before the 

rulemaking proposal was released. This work, 

FIGURE 5. RILA Research Methods (4 Methods Used)

Qualitative Simulations Market Analysis Quantitative

INSIGHTS ABOUT RILAS
14 | OFFICE OF THE INVESTOR ADVOCATE

RILA

BUFFER CAP FLOOR

TRIGGER

INTERIM 

VALUE 

ADJUSTMENT

SURRENDER CHARGE

LENGTHCONTRACT 

INVESTMENT TERM

TAX

INDEX FEES

PENALTIES

conducted at a much earlier stage than prior 

investor testing, helped ensure that data-driven 

insights informed the proposed rule.22

The research project yielded five key lessons about 

RILAs of relevance to investors.

Lesson #1: Complexity and Jargon Make 

RILAs Hard to Understand

RILAs are challenging for consumers to 

understand. The products are complex, and the 

jargon used to explain them is unfamiliar to 

even the most sophisticated consumers.23 In our 

qualitative and quantitative testing, we provided 

consumers with hypothetical disclosure text and 

assessed their understanding of RILAs. We found 

that many consumers were confused by or unable 

to understand key terminology, such as investment 

term, interim value adjustment, and buffer. 

Beyond the terminology, we found that many 

interview participants struggled to understand 

the details of the RILA contract presented in 

the hypothetical disclosures. These difficulties 

manifested both in their explanations of key 

concepts and in their application of the knowledge. 

In quantitative testing, we asked consumers to 

answer true–false questions about the RILA 

materials that were presented. Despite the 

disclosures, consumers were only able to answer 

58% of the questions correctly on average, which 

is only slightly better than what we would expect 

if the participants were randomly guessing. These 

results suggest that substantial conceptual barriers 

surround RILAs. 

In sum, many participants remained unable to 

fully understand the implications of the RILA 

features and, thus, had limited ability to apply that 

information in decision-making. 

Lesson #2: Insurance Features Greatly 

Affect How a RILA Performs and 

Investors’ Chances of Losing Money 

In our analysis of the RILA market, we considered 

how different RILA features could have influenced 

an investor’s possible investment returns in recent 

history. We performed this analysis by applying 

currently available investment option insurance 

features to the historical returns of the indices that 

RILA issuers track. Our baseline simulations used a 

commonly offered investment option from the data 

(a one-year investment term, an 18% cap and 10% 

buffer) and our comparison options were slight 

modifications from that baseline.

These simulations compared the returns from 

investing in a RILA option with the returns of 

the index itself in order to understand the extent 

to which RILA insurance features would have 

mitigated losses and capped returns during the 

1990 to 2019 period. We believe this analysis could 

be informative for people who are evaluating the 

potential economic value of the RILAs. In turn, 

more accurate assessments of economic value may 

help potential investors decide if and how to invest 

in a RILA.
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 15

Overall, our results suggest that the purchasers’ 

choices of insurance features can significantly 

impact returns. Surprisingly, despite the emphasis 

on the insurance features as risk mitigation devices, 

during our historical simulation period, some RILA 

investment options would have actually increased 

risk and reduced returns versus investing directly in 

the underlying index. 

To illustrate the effect of insurance features on 

potential returns, Figure 6 summarizes the results 

of our simulations. Each panel presents the 

distribution of the simulated outcomes for one 

of four realistic 1-year investment term options 

that an investor may encounter. Specifically, we 

simulated investment returns associated with a 

$10,000 investment in a given RILA investment 

option that rolled over five times, for a total 

investment duration of 6 years. Simulations were 

repeated starting in each month from 1990 to 

2013 (i.e., one simulation ran from January 1990 

to January 1996, a second ran from February 

1990 to February 1996, and so forth, ending 

with a final simulation from January 2013 to 

January 2019). In each panel, the height of each 

bar represents the number of simulations that 

resulted in a particular final investment balance. 

Specifically, results for the RILA investment 

option are shown in blue and results for the S&P 

500 index are shown in yellow.

The investment options we examined in 

Figure 6 were: 

 An 18% cap and 10% buffer (Panel A; note 

that this was similar to an investment option 

offered by many different issuers and was the 

main case we explored in our research)

 A 13.5% cap and 15% buffer (Panel B)

 A 10.9% trigger and 10% buffer (Panel C)

§ A 19.5% cap and 20% floor (Panel D

It is clear from Figure 6 that the RILA options we 

examined would have reduced the potential gains 

and the extent of the losses relative to the index. 

At the same time, potential returns to the RILA 

options differed significantly depending on the 

particular insurance features. For example, in Panel 

D (19.5% cap, 20% floor), the probability of losing 

money would have been 37% compared to 15% 

for investing directly in the index. Additionally, the 

highest possible gains would have been limited.

Lesson #3: The Timing of RILA Purchases 

Affect Investors’ Chances of Losing Money 

Our historical simulations also highlight an 

important result that may be unintuitive to 

potential investors: The precise timing of 

investments can have substantial impacts on how 

insurance protections are triggered. While timing 

is important to a certain extent in the case of 

purchase and sales decisions in many investments 

the issue is particularly acute for RILAs. Investment 

options purchased within a RILA are associated 

with a forced sale at the end of each investment 

term. In other words, RILA investors experience 

an adjustment in the value of their RILA holdings 

at the end of each investment term; thus, even if 

the underlying index is only temporarily depressed, 

investors cannot wait until a market recovery to 

realize gains. Put another way, although RILA 

products have a long-run investment purpose and 

investment options offer insurance protections on 

the realization of returns at the end of a term, RILA 

investors’ investment options essentially place a 

bet on the realized value of the index on a specific 

end-of-term day. 

General market fluctuations occur constantly and 

affect the value of many investment products. Yet, 

because RILA investments leave investors limited 

discretion over the timing of sales, timing-based 

changes in value are particularly important for 

these products. An investor purchasing a mutual 
16 | OFFICE OF THE INVESTOR ADVOCATE

FIGURE 6. Comparing Alternative Investment Options

Index RILA

120

90

60

30

0

Panel A: 10% buffer and 18% cap

$10,000 $15,000 $20,000 $25,000 $30,000 $35,000

Count

120

90

60

30

0

Panel B: 15% buffer and 13.5% ca

Count

$10,000 $15,000 $20,000 $25,000 $30,000 $35,000

120

90

60

30

0

Panel C: 10% buffer and 10.9% trigger

(threshold 0%)

Count

$10,000 $15,000 $20,000 $25,000 $30,000 $35,000

120

90

60

30

0

Panel D: -20% floor and a cap of 19.5%

Count

$10,000 $15,000 $20,000 $25,000 $30,000 $35,000

This figure displays simulated investment outcomes for different RILA investment options (as specified in each panel)

The height of each bar represents the number of simulated realizations with that particular outcome
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 17

fund or exchange-traded fund tracking the index, 

in contrast, could hold the fund for a longer period, 

with the possibility of avoiding losses due to a 

forced sale on a specific date. 

As an example, consider the investment option 

from the left panel of Figure 7 (18% cap, 10% 

buffer). During the period from 1999 to 2000, the 

S&P 500 rose by 20%, but this RILA investment 

option’s returns would have been capped at 18%; 

thus, by 2000, the RILA would have slightly 

trailed the index. The situation was different in the 

2000 to 2002 period, when the index dropped in 

value. Over that period, the RILA’s buffer would 

have reduced losses, allowing its cumulative 

value to exceed that of the hypothetical S&P 500 

investment. By 2005, the $10,000 investment made 

in this RILA investment option in 1999 would have 

increased by 27% (ending at $12,730), whereas the 

index lost 1.5% (ending at $9,857). 

As a comparison, the right panel of Figure 7 shows 

a RILA with the same insurance features (18% 

cap, 10% buffer) held for a 6-year period starting 

in 1991. In this instance, at the end of 6 years, 

the RILA would have underperformed the S&P 

500 index due to the 18% cap, which would have 

limited the returns in certain years when the index 

gained value. The final investment value of the 

RILA in 1997 would have been approximately 

$4,000 lower than the index. 

Together, the two panels of Figure 7 illustrate the fact 

that the value of a RILA (and the value of a RILA 

relative to its index) can vary significantly depending 

on the time period during which it is chosen, even 

holding constant the insurance features. 

Lesson #4: Increased Comprehension Is 

Possible Through Investor Testing

A quantitative test with thousands of consumers 

and qualitative tests with a smaller group of 

FIGURE 7. Simulated Value of a $10,000 Investment in a RILA Option Versus Direct Investment in the 

Associated Index over Different Time Periods

The RILA investment option in both graphs is the same: an S&P 500 price return–linked index with an 18% cap, 10% 

buffer, and a 1-year investment term. These two graphs illustrate the fact that the value of a RILA (and the value of a

RILA relative to its index) can vary significantly depending on the time period during which it is chosen, even holding 

constant the insurance features

Index RILA

From 1999 to 2005

1999 2000 2001 2002 2003 2004 2005

$13

$12

$11

$10

$9

$8

$7

Investment Balance in Thousands

Index RILA

From 1991 to 1997

1991 1992 1993 1994 1995 1996 1997

$24

$20

$16

$12

Investment Balance in Thousands
18 | OFFICE OF THE INVESTOR ADVOCATE

individuals were conducted to explore how 

well potential investors understand RILAs 

and what changes could be made to improve 

comprehension. Our investor-focused testing 

research design consisted of 1-hour, one-on-one 

qualitative interviews with 20 individuals from 

around the country with varying levels of 

experience and sophistication, which enabled 

us to identify key ways that investors interact 

with RILA information and to identify areas 

of confusion. Using this qualitative research 

as a basis, we tested various disclosures more 

broadly with over 2,500 participants in a rigorous 

quantitative testing study. For that quantitative 

testing, we sampled a broad mix of investors who 

were diverse in terms of age, gender, education, 

and annuity ownership (Figure 8).

Although we generally found comprehension 

to be quite low, there were some variations on 

the disclosure materials that resulted in modest 

increases in comprehension. Our research was 

highly accelerated due to a compressed timeframe; 

nevertheless, our analyses demonstrated the promise 

of testing for improving disclosure while providing 

practical guidance to the rulemaking team. 

One focus of the rule proposal was the use of 

a Key Information Table (KIT) to highlight 

aspects of RILAs with which investors might be 

unfamiliar. Our research design focused on two 

alternative versions of the KIT: a version with 

question-and-answer (Q&A) headings, and a 

version with non-Q&A headings. An additional 

dimension of the study tested the differential 

impacts of four potential introductions to preface 

the KIT: a “Benefits Only” introduction based 

on our review of RILA marketing materials; a 

“Key Terminology” introduction that referenced 

a number of key terms used in the KIT; a 

“Decision Focus” introduction that attempted 

to avoid the use of jargon and layer information 

to help participants unpack how a RILA works 

in digestible pieces (e.g. this version covered the 

purpose of a RILA before delving into more 

complex details of the products); and a control 

FIGURE 8. Participant Characteristics 

OWNS ANNUITY

42.1%

Yes 

57.8%

No 1.4%

12.3%

18.2%

68.1%

No High School Diploma

High School or Equivalent

Some College

BA or Above

EDUCATION

62.2% 37.5%

MALE

FEMALE

5.2%

OTHER OR 

MISSING
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 19

condition that provided no introduction at 

all. Thus, each participant viewed one of four 

introductions and one of two KIT versions, for a 

total of eight different combinations. 

Our quantitative study measured comprehension 

across 28 questions, which could be organized 

into four subscales: “How do RILAs work?” 

(these questions considered the basic purpose and 

structure of RILAs); “Which investors should 

consider RILAs?” (these questions asked about 

the potential appropriateness of a RILA in selected 

investment settings); “How do upside caps and 

downside protections work?” (these questions 

asked about the insurance features of a RILA); 

and “What happens upon withdrawal of funds?” 

(these questions asked about the liquidity aspects 

of RILAs, largely about how early withdrawal 

penalties work).24

Figure 9 summarizes our quantitative study by 

subscale and introduction. Average comprehension 

on the “How do RILAs work?” subscale differed 

across the introductions, with the Decision Focus 

introduction having the highest comprehension 

(Figure 9). The differences between the Decision 

Focus and other introductions are all at least 

marginally significant, although the magnitudes 

of these differences are all modest. The “Which 

investors should consider RILAs?” subscale had 

differences across introductions with the Decision 

Focus having the highest average performance. All 

the other introductions have significantly worse 

average comprehension, although the magnitudes 

of these differences are modest. Performance on the 

“How do upside caps and downside protections 

work?” had no significant differences between 

introductions. Finally, on the “What happens 

upon withdrawal of funds?” subscale, average 

performance differed between the Key Terminology 

and the control introductions, with the Key 

Terminology doing significantly worse, again, with 

only a modest difference in magnitudes. 

FIGURE 9. Summary of Average Percentage 

of Questions Answered Correctly Across 

Introductions 

What happens upon withdrawal of funds?

Decision Focus 62.

Key Terminology 61.

Benefits Only 62.

Control (No Introduction) 62.

How do upside caps and downside 

protections work?

56.

56.

58.

Decision Focus 56.

Key Terminology

Benefits Only

Control (No Introduction)

56.

57.

55.

60.

Which investors should consider RILAs?

Decision Focus

Key Terminology

Benefits Only

Control (No Introduction)

How do RILAs work?

48.

48.

48.

Decision Focus 52.

Key Terminology

Benefits Only

Control (No Introduction)

Four introductions were developed to observe investors’ 

understanding of key concepts about RILAs. The first

introduction, “Control” was a control scenario, which 

participants were given no information about RILAs. The

second introduction, “Key Terminology” was designed 

to introduce participants to key terminology. The

third introduction “Benefits Only” described potential 

benefits of owning a RILA. The fourth introduction,

“Decision Focus” reduced the use of jargon and 

presented information in an order we believed to be 

more meaningful to new potential investors. Within

each introduction, all participants answered questions 

categorized in four separate conceptual sub-scores: 

(1) How do RILAs work? (2) How do upside caps and 

downside protections work? (3) Which investors should 

consider RILAs? (4) What happens upon withdrawal 

of funds? Numerical values represent the average 

percentage of subscale questions answered correctly by 

participants assigned to the given introduction condition
20 | OFFICE OF THE INVESTOR ADVOCATE

Average comprehension across the two KIT 

formats (i.e., Q&A and non-Q&A headings), 

was similar, as shown in Figure 10. However, the 

Q&A format yielded greater comprehension on 

the “How do RILAs work?” subscale, albeit a 

quantitatively modest difference. Across the other 

three subscales the KIT formats did not result in 

different comprehension, Figure 10. 

Our quantitative study provided additional 

suggestive evidence that the jargon used in the 

discussion of RILA products may also hamper 

comprehension, with possible downstream 

consequences on decision-making. When 

comparing the comprehension questions that 

included jargon versus those that did not, 

participants on average answered fewer of the 

jargon-laden questions correctly.

Overall, these results suggest that disclosure 

materials can improve comprehension, although 

modest changes were observed in this study. 

Further research and study are needed to build on 

these findings and develop disclosures that help 

investors make decisions in line with their goals 

and interests. 

Lesson #5: Limited Transparency is a 

Barrier to Understanding RILA Products

Although POSITIER constantly endeavors to make 

disclosures more accessible to a broad range of 

investors, we are mindful that different investors 

and other stakeholders may have different needs 

for detailed information. Our research efforts 

were greatly aided by our ability to design and 

run complex calculations and by having extensive 

access to highly informed individuals who have 

technical expertise with the products. 

At the same time, our research would have 

benefitted from an increase in available data on 

RILA investments. We were unable to identify 

and access a data source that has reliable current 

and historical data on RILA product offerings, 

Q&A KIT format non-Q&A KIT format

62.3 62

57.4 57.1 57.3 

50.2 48

FIGURE 10. Comprehension of RILAs across KIT Formats

60

50

40

How do RILAs work? Which Investors Should 

Consider RILAs?

How do upside caps and 

downside protections work?

What happens upon 

withdrawal of funds?

Participants were presented with one of two sets of KIT rows, with each row presented one at a time. The first set

(Q&A) framed each row title as a question, and the second set (Non-Q&A) framed each row title as a statement. All

participants answered questions categorized in four separate conceptual sub-scores: (1) How do RILAs work? (2) 

Which investors should consider RILAs? (3) How do upside caps and downside protections work? (4) What happens 

upon withdrawal of funds? Numerical values represent the average percentage of subscale questions answered 

correctly by participants assigned to the given condition. Percent correc
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 21

which impaired our team’s ability to study certain 

aspects of RILAs. Moreover, we were unable to 

identify data that would help us assess the impact 

of early withdrawals on investors or on realized 

returns of actual investors. While some proprietary 

data sources may provide some insights for 

investors, the lack of readily available data makes 

it more difficult for potential investors to properly 

evaluate the benefits and costs of investing in 

RILAs and to select appropriate investment 

options for themselves. 

Advocates and policymakers interested in the 

impacts of RILAs on investors may consider 

encouraging the development and maintenance of 

systematic, accessible and reliable data on RILA 

product offerings and usage by investors.

Concluding Thoughts on RILA 

Investor Testing

RILAs are a relatively new financial innovation that 

have been increasingly attracting investments since 

emerging in the early 2010s.25 If used with attention 

to the substantial early withdrawal penalties, the 

products and some investment options may offer 

a set of benefits that appeal to certain investors. 

Our study provided extensive insights about these 

products that may be useful to investors, regulators, 

and the public. Although much more can surely 

be learned and communicated about RILAs, we 

believe our effort provides an enormous step 

forward on a rarely studied investment product 

that is expected to be increasingly sold.26

RILA products are complex and may require 

considerable effort on the part of providers, 

regulators, and investors to ensure they are 

purchased by investors who can benefit from them, 

and used in a way that realizes those benefits (for 

example, for long-term retirement savings and 

with careful attention to, among other things, early 

withdrawal penalties, tax consequences and an 

investor’s appetite to make complex investment 

decisions over the life of the contract). 

Our investor testing demonstrates that testing 

methods can effectively examine the relationship 

between disclosures and comprehension and 

point to ways to improve disclosures for investor 

decision-making (Lesson #4). While the proposed 

RILAs registration form was diligently developed 

with the aid of investor testing under tight time 

constraints, we remain concerned that a significant 

number of RILA investors will be unable to 

make fully informed decisions related to these 

products. With more time, it is possible that more 

effective RILA disclosures could be developed, 

communicating more useful and relevant 

information for investors’ decisions. It is also 

possible, however, that any retail investor-friendly 

disclosure would be insufficient to capture the 

inherent complexity of RILAs.

More broadly, we are concerned that the 

Commission’s historical disclosure-based regulatory 

regime alone may prove inadequate not just for 

RILAs, but for many highly complex financial 

products. As innovation in financial products and 

services continues to accelerate, we grow concerned 

whether the Commission’s investor protection 

efforts will keep pace. Currently, a significant 

portion of such efforts rely on the assumption 

that full and fair disclosure by financial product 

sponsors is sufficient to allow investors to make 

fully informed decisions about investment products. 

Given the investor testing results discussed above, 

however, we believe it would be appropriate to 

explore whether that assumption holds true for 

highly complex financial products and whether 

alternative investor protection safeguards should 

be considered. We encourage our colleagues across 

the Commission to entertain new, innovative, 

data-driven, and investor-focused approaches 

to disclosures and investor protection related to 

complex financial products. 
22 | OFFICE OF THE INVESTOR ADVOCATE

One potentially more desirable approach would 

be to provide shorter, layered disclosures that 

organize information in terms of decisions that an 

investor needs to make or questions an investor 

might plausibly have. Currently, investors receive 

disclosures on many aspects of a product or service 

and are expected to sift through many different 

topical areas to assemble information relevant to 

them for a particular decision. The situation can be 

more challenging for investors who may not know 

what information they need to know, as they may 

have difficulties identifying and assembling the 

relevant information. 

Building on our RILA research, a particular avenue 

for improving disclosure could involve the creation 

of decision trees to help guide investors through 

the many complex decisions one must make when 

deciding to purchase an investment. In the case 

of RILAs, an investor must answer questions 

such as: Is a RILA right for me? Which insurance 

carrier should I purchase from? What index 

should my RILA track? What insurance features 

should I select? Each of these questions is complex, 

often require consideration of a set of subsidiary 

questions, and may require different information 

to answer. 

Figure 11 provides a sketch of how such a decision 

tree might work when evaluating an investment 

product. This diagram is provided for illustrative 

purposes only, given that each of the decision 

nodes on the diagram (diamonds) may itself 

involve a set of subsidiary decisions. Nevertheless, 

the illustration suggests a possible sequence of 

decision nodes for the purpose of discussion.

The first node asks investors to consider if this type 

of product is appropriate for their goals: How does 

the product work? Does it serve a purpose aligned 

with the investor’s goals? Are there better options 

available? These questions seem fundamental to 

any investor product evaluation.

The second node asks if the product provider 

is right for the investor. Does the provider offer 

options that are appropriate for the investor? 

Could the financial viability of the provider be an 

issue? There are many factors that may go into 

such a decision.

The final node asks, “Of the investment options 

this provider offers, is this one the right one 

for me?” This last node embodies a layer of 

comparison shopping, where specific product 

features are relevant.

YES

YES

YES

Consider 

other types of 

investments

Consider other 

providers

Consider 

different options 

or products the 

provider offers

Of the 

investment options 

this provider offers, is this 

one the right 

one for me?

Continue 

evaluating the 

investment product

FIGURE 11. Stylized Investor Decision Tree

Does this type of 

product match my 

financial goals?

Is this 

provider right 

for me?
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 23

Of course, this illustrative decision tree is too 

generic to fully guide an investor, but it highlights 

some conceptual aspects of a decision tree. A good 

decision tree can produce an efficient organization 

of information and may help an investor to quickly 

identify if a product is not right for them. 

Aside from providing a decision tool to an investor, 

how could such a decision tree guide the design of 

a disclosure? Standard disclosures are rarely written 

with a specific decision context in mind. Often, 

disclosures are structured with an assumption that 

an investor has already determined that the type of 

product or the provider is the right one for them— 

at best, essentially assuming the investor is at the 

last node of the illustrative decision tree. While the 

content of disclosures may to be extremely valuable 

to different types of investors, the structure of 

disclosures may make the content less useful to 

investors who are at different nodes in the decision 

tree. A decision tree model may help issuers 

organize the content of disclosures in a way that 

could more effectively inform investors.

We must also acknowledge the assistance 

investment professionals provide many retail 

investors when making financial decisions. In 

particular, investment professionals are likely 

to play an important role in ensuring the 

appropriateness of RILAs for investors, as RILAs 

are often professionally sold products. RILAs 

are frequently marketed to older investors; thus, 

it is reasonable to ask whether a highly illiquid 

investment is the right choice for a specific older 

investor. Given the costly nature of RILA penalties 

discussed above, information on how often they 

are levied would provide significant insights on 

how well investment professionals help investors 

during the purchasing process. If RILA products 

were to be recommended following proper analysis 

of an investor’s situation, one would expect to find 

that charges and penalties would rarely be levied 

in practice (because the investor’s likelihood of 

withdrawal would be thoroughly considered before 

a sale was made). Data on RILA withdrawals and 

household financial shocks are thus likely to be 

relevant to investors, financial intermediaries, and 

regulators. Unfortunately, as noted above, we lack 

transparency in the RILA market, which makes it 

difficult to ensure that investors are receiving the 

information they need to make decisions about 

these products.

Overall, we encourage the Commission to explore 

new, innovative, and data-driven approaches to 

investor protection related to complex financial 

products and to test disclosures that better 

assist investors and their decision-making. With 

respect to RILAs in particular, we look forward 

to analyzing public comments on the proposed 

RILAs registration form, and to working with our 

colleagues to help ensure that investors are enabled 

to make fully informed decisions.

STOCK MARKET EXPECTATIONS

Multiple nationally representative surveys 

ask investors to forecast future stock market 

movements, with the goal of understanding 

consumption, savings, and investment decisions. 

Typically, these surveys ask individuals to report 

the likelihood that the market will increase in value 

(e.g., the Federal Reserve Bank of New York’s 

Survey of Consumer Expectations; the University 

of Michigan Health and Retirement Survey), which 

may be a natural way for most people to think 

about stock market movements.

In POSITIER research regarding stock 

market expectations, we identify a novel and 

counterintuitive effect regarding how these 

expectations are elicited.27 Specifically, we show 

that when individuals are asked to predict the 

likelihood that the stock market will increase in 
24 | OFFICE OF THE INVESTOR ADVOCATE

value, they provide more pessimistic forecasts than 

when they are asked to make the inverse forecast 

about the likelihood the market will decrease in 

value. This difference implies that existing surveys 

may vary in accuracy depending on how questions 

are phrased, a point of crucial importance for 

investors’ decision-making, since expectations are 

key to economic models. 

Academic research has shown that individuals’ 

perceptions of products as positive or negative 

are generally consistent with the way product 

attributes are framed. For instance, a company 

with an “85% success rate” will often be perceived 

more positively than one with a “15% failure 

rate.”28 Thus, the finding from the forecasting 

question—the probability of a stock market 

increase leads to more pessimistic forecasts—is 

particularly surprising.

The reverse framing effect for stock market 

expectations is stable over many contexts. In 

our research, we find the framing effect within 

nationally representative samples, for predictions 

of market performance over the next month and 

over the next year, and over several months of 

data collection. The difference is found when 

participants read information about prior market 

performance and when using additional variants on 

the wording of stock market questions. However, 

differences in forecasts are smaller among those 

who have greater financial literacy and greater 

comfort with making numerical judgments.

This research shows that investor and consumer 

forecasts may be meaningfully impacted by the 

way in which questions are asked. Furthermore, 

because the standard framing for a forecast 

question is to ask about the likelihood of market 

growth, our research suggests that many elicitations of investors’ forecasts may underestimate 

investors’ true beliefs about future market performance. Overly pessimistic expectations about 

future stock market performance could lead 

policymakers to believe a recovery from a down 

market is less likely than it actually is, or it could 

make policymakers less concerned about a period 

of stock market growth than would otherwise 

be warranted. Beliefs about stock market growth 

also contribute to inflation expectations among 

firm managers, with potential consequences on 

the prices of goods.29

We recommend that future elicitations use a neutral 

frame that simultaneously asks about the likelihood 

that the market will increase and the likelihood 

that the market will decrease. We believe that such 

elicitations will provide more accurate information 

on investors’ expectations of the stock market. 

Concluding Thoughts

Serious and robust evidence on investors’ decisionmaking can have an enormous impact on policy 

proposals that affect investors’ well-being. As 

described above, whether investors have the information necessary to make well-informed decisions 

is consequential for their financial outcomes; 

similarly, understanding investors’ decisions can 

help the Commission determine whether policy 

interventions are appropriately crafted. 
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 25

ADVOCACY 

FOR INVESTORS

THIS SECTION OF OUR ANNUAL

REPORT ON ACTIVITIES describes a 

selection of our policy activities on behalf of 

investors for the period from October 1, 2022 to 

September 30, 2023 (the Reporting Period). 

PRIVATE MARKETS

As described in our prior Reports, the Office of 

the Investor Advocate has long focused on the 

issues surrounding the growth of the private 

markets in the United States.30 The SEC regulates 

the private markets through, among other things, 

the regulation of offers and sales of securities by 

issuers, including private companies, pursuant 

to the exemptions from the registration process 

for securities offerings under the Securities Act of 

1933. Over the past 15 years, the private markets 

have expanded considerably, with the amount 

of capital raised in these markets during this 

time exceeding the amount of capital raised in 

public registered offerings.31 As we have previously noted, investing in the private markets may 

involve heightened risks compared to investing 

in the public markets, particularly for retail 

investors.32 These risks may include reduced, 

incomplete or unreliable disclosure, illiquidity, 

and greater risk of fraud and/or investment loss. 

Nevertheless, the private markets, encompassing 

a variety of asset classes such as equity, debt, real 

estate, and private investment funds, have become 

a critical pathway for companies seeking to raise 

capital and a major source of investment opportunities and portfolio diversification for investors. 

During Fiscal Year 2023, we closely monitored 

developments relating to the private markets, 

including pending legislative proposals in Congress, 

and evaluated their potential effects on investors. 

In addition, as discussed below, we engaged in 

outreach efforts, analyzed and shared research 

findings with Commission staff, and explored the 

issues and concerns raised by investors and others 

regarding the relative lack of available information 

on the private markets.

Outreach 

During Fiscal Year 2023, the 

Office engaged internally and 

externally with the Commission, 

Commission staff, investors, and 

other stakeholders as part of our 

ongoing effort to gain a deeper understanding of 

the issues and different perspectives surrounding 

the private markets. This outreach effort included a 

number of events where retail investors recounted 

their experiences with private investments or 

otherwise voiced their concerns regarding these 

investments. We also had the opportunity to meet 

with various institutional investors and other 

market participants who shared their views on 

aspects of the private markets.

For example, we have sought the views of investors 

and other parties on the issue of accredited investor 

status. A significant reason behind the continued 

growth of private markets is the increasing 

number of investors who qualify as “accredited 

investors” and are thus eligible to invest in private 
26 | OFFICE OF THE INVESTOR ADVOCATE

offerings under a number of offering exemptions.33

Individuals qualify as accredited investors based 

on certain wealth and income thresholds, which 

have not been adjusted for inflation since they were 

adopted in the 1980s, or through other measures 

serving as a proxy for financial sophistication 

(Table 1).

The views expressed by commentators on the 

accredited investor definition have varied widely, 

ranging from support for either an expanded or 

a more restrictive definition, or even advocating 

for the elimination of the definition altogether.34 In 

this regard, we note that the panel discussion on 

accredited investor status at the Investor Advisory 

Committee’s September 2023 meeting—one of four 

panel discussions held by the Investor Advisory 

Committee on private markets during Fiscal 

Year 2023—highlighted various perspectives and 

considerations in amending the definition.35

In view of the magnitude of the private markets 

and the significant and growing number of retail 

investors now able to invest in these markets as 

accredited investors, we expect that continuing and 

expanding this outreach effort will be a priority of 

the Office going forward as we endeavor to provide 

a voice for investors in this important area.

Investor Research 

We believe that investor 

research may provide a helpful 

source of objective data for 

the Commission in making 

policy decisions with respect 

to the private markets. For example, during 

Fiscal Year 2023, our Office of Investor Research 

(OIR) analyzed survey data on the investment 

knowledge and economic vulnerability of retail 

investors, including accredited investors, in the 

context of income and wealth. OIR may explore 

the possibility of engaging in further research on 

topics relating to the private markets and investor 

welfare, drawing on its multidisciplinary research 

expertise in economics, finance, psychology, and 

communications. We believe that these and other 

potential areas of inquiry, if undertaken, could 

benefit the Commission in considering various 

policy approaches to improving the regulation of 

the private markets.

Information on Private Markets 

Issuers conducting private 

offerings often utilize 

Regulation D, which sets forth 

various exemptions from the 

registration requirements of the 

Securities Act of 1933, including the widely 

TABLE 1. Accredited Investor Definition

Wealth Net worth Other Criteria

An individual qualifies as an 

accredited investor based on 

wealth when that person, either 

alone or together with a spouse or 

spousal equivalent, has a net worth 

that exceeds $1 million, excluding 

the value of the person’s primary 

residence

An individual qualifies as an 

accredited investor based on 

income when that person has had 

an annual income that exceeded 

$200,000 (or $300,000 with a 

spouse or spousal equivalent) in 

each of the prior two years and 

has a reasonable expectation of 

the same for the current year

An individual can also qualify as 

an accredited investor through 

other measures of financial 

sophistication, for example, by 

holding in good standing certain 

professional certifications or 

designations. Entities can qualify

as accredited investors by 

meeting certain criteria under the 

accredited investor definition
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 27

used Rule 506(b) exemption.36 In view of the 

significant size and opaque nature of the private 

markets, some commentators have urged the 

Commission to enhance the requirements of Form 

D, the notice of an offering under Regulation D 

that is filed with the Commission.37 These 

commenters point to, among other things, the 

lack of transparency in the private markets, the 

limited information currently required to be 

provided in the form, and the degree of issuer 

noncompliance regarding this filing requirement.38

Conversely, other commentators have raised 

concerns about the increased burdens and costs 

associated with enhancing Form D, such as the 

amount and nature of the additional information 

that would potentially be made public through 

Form D filings.39 During Fiscal Year 2023, 

we sought to deepen our understanding of 

the issues surrounding Form D as well as 

potential approaches to improving the quality of 

information available on private offerings both 

to the Commission and to investors. We look 

forward to working with Commission staff as 

they consider whether to recommend additional 

action in this area.

EQUITY MARKET STRUCTURE

In 2023, the Commission continued working to 

enhance many aspects of the equity market. In 

general, our office sought to ensure that the needs 

of investors, both large and small, were considered 

during this ongoing process of enhancing the 

equity market. 

As noted in our recent June 2023 Report on 

Objectives, in December 2022, the Commission 

proposed a set of four significant rulemakings 

intended to improve the environment for retail and 

institutional trading in the modern market.40 The 

proposed rules would: (1) establish a Commissionlevel best execution regulatory framework; (2) 

require certain retail orders to be exposed to 

competition in open public auctions: (3) amend 

existing rules to narrow “tick sizes” for quoting 

and trading certain stocks, lower market access 

fee caps, and accelerate transparent pricing; 

and (4) amend execution quality disclosure 

requirements for market centers. Through the 

perspective of our office’s overall concern, we 

reviewed the proposals and public comments. 

We have considered the comments submitted in 

response to these proposals in order to consider 

how these amendments may help promote the 

interests of retail and institutional investors, 

whether they be adopted in whole, in part, or in 

some amended form. Over the last year, we have 

and will continue to encourage the Commission 

to consider commenters’ suggested adjustments 

that appear most likely to benefit investors when 

finalizing these proposals. Our own Office of 

Investor Research also continues to consider how 

the presentation of disclosure data in this proposal 

could best serve investors.

We have also monitored a number of proposals 

from self-regulatory organizations on the 

topic of equity market structure. For example, 

FINRA requested public comment on possible 

enhancements to its own rules concerning the 

centralization of execution quality disclosure 

requirements for market centers operated by 

broker dealers.41 Although this effort would 

enhance accessibility of a significant portion of the 

proposed disclosure reports, it would not eliminate 

search costs for those investors looking to compare 

and contrast all of the various reports. We continue 

to consider how to facilitate centralization in order 

to help investor decision making in this space.

Retail investors often contact OIAD to express 

concern regarding the practice of short selling, a 

trend that has increased over the last few years. 

We supported the Commission’s efforts to enhance 

transparency in short selling42 as well as the 
28 | OFFICE OF THE INVESTOR ADVOCATE

opaque network of stock lending and borrowing 

that facilitates the practice,43 and look forward to 

the Commission and FINRA implementing these 

disclosure regimes over the next year. Maintaining 

a repository of relevant data should help improve 

the Commission’s ability to monitor this area of the 

market, as well as provide the public with useful 

information about the practices. All investors 

should benefit from having free and readily 

accessible short sale-related data available through 

the Commission’s website. 

CYBERSECURITY

Over the years, the Office of the Investor 

Advocate has sought to ensure that the interests 

of investors are represented and considered 

with respect to the cybersecurity initiatives of 

the SEC. The increasing frequency and severity 

of cybersecurity incidents at public companies, 

funds, and other regulated entities have been 

well-documented, with significant costs ultimately 

being borne by investors.44 With the U.S. economy 

growing ever more interconnected through digital 

technology and electronic communications, 

we expect that cybersecurity and its impact on 

investors will continue to be important area of 

focus in OIAD’s activities.

During Fiscal Year 2023, OIAD analyzed and 

provided investor-focused feedback on the 

following Commission rulemaking proposals 

relating to cybersecurity in Table 2.

We are encouraged that the Commission has 

prioritized cybersecurity in its rulemaking efforts. 

Going forward, we will continue to consider 

public comments submitted in response to the 

pending cybersecurity proposals, and we look 

forward to working with Commission staff as they 

consider recommending additional action. We will 

also monitor the implementation of the recently 

TABLE 2. Investor-focused Feedback on These Rulemaking Proposals

Investment Companies and 

Investment Advisers Public Companies

In February 2022, the Commission proposed rules 

and amendments intended to enhance cybersecurity 

preparedness and improve the resilience of registered 

investment advisers, and registered investment 

companies and business development companies 

against cybersecurity threats and attacks

45

In July 2023, the Commission adopted final rules 

requiring public companies to disclose material cybersecurity incidents on Form 8-K and provide enhanced 

disclosure of cybersecurity risk management, 

strategy, and governance in annual reports

46

Proposed Amendments to Regulation S-P Market Entities

In March 2023, the Commission proposed 

amendments to Regulation S-P intended to enhance 

the protection of customer information by, among 

other things, requiring broker-dealers, investment 

companies, registered investment advisers, and 

transfer agents to provide notice to individuals 

affected by certain types of data breaches that may 

put them at risk of identity theft or other harm

47

In March 2023, the Commission proposed two 

rulemakings that are intended to protect the 

U.S. securities markets and investors in thes

markets from the threat posed by cybersecurity 

risks

48 The proposed rules would: (1) require key 

market participants to take measures to protect 

themselves and investors from the harmful impacts of 

cybersecurity incidents; and (2) amend existing rules 

to expand the scope of entities subject to Regulation 

Systems Compliance and Integrity (“SCI”) and update 

requirements to take account of the evolution of 

technology and trading
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 29

adopted public company cybersecurity disclosure 

rules and anticipate sharing any feedback on 

these rules from our outreach activities with our 

Commission colleagues.

PROBLEMS ENCOUNTERED BY 

INVESTORS

Pursuant to Exchange Act Section 4(g)(6)(B)(III), 

we are required to provide a summary of the 

most serious problems encountered by investors 

during the prior fiscal year. Two of the more 

troubling problems encountered by investors, 

as summarized in other sections of this report, 

are RILAs and onerous mandatory arbitration 

provisions in investment advisory agreements. 

In addition, Figure 12 below summarizes some 

of the other serious problems that investors have 

encountered during Fiscal Year 2023, based on our 

consultation with sources both within and outside 

the Commission.

Each of the products and practices listed in 

Figure 12 represents an area of concern for 

investors during the Fiscal Year 2023. OIAD 

communicates regularly with various Divisions 

and Offices within the Commission, including 

with the Division of Enforcement, the Division of 

Examinations, and the Office of Investor Education 

and Advocacy, among others, to gain awareness of 

the problematic products and practices that such 

Divisions and Offices may discern in the course 

of their work. The Office also maintains regular 

communications with other regulators, such as 

FINRA, NASAA, PCAOB, and the Municipal 

Securities Rulemaking Board to maintain visibility 

into problematic products and practices that those 

regulators have confronted in their day-to-day 

responsibilities during the reporting period.

FIGURE 12. Lists of Certain Problems Encountered by Investors During Fiscal Year 2023

Reported 

potentially 

problematic 

products or 

practices

SEC49

• Noncompliance with Regulation BI

• Noncompliance with the Adviser Marketing Rule

• Crypto Asset Securities

• Leveraged and Inverse ETFs

NASAA50

• Digital Asset Frauds

• Pig-Butchering Schemes

• Social Media and Internet Schemes

FINRA51

• Phantom Riches

• Social Consensus

• Source Credibility

• Scarcity

• Reciprocity

PCAOB52

• Proof of Reserve Assertions

• High Audit Deficiency Rates

• Recurring Quality Control Deficiencies
“It is our Office’s challenge, duty, and 

privilege to provide personalized assistance 

to the investors who seek our help, often as a 

point of first contact or as a last resort.
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 31

EVERY DAY, INVESTORS ACROSS THE 

COUNTRY and around the world reach out 

to the Office of the Ombuds53 for information 

and assistance in resolving issues related to the 

Commission and the SROs we oversee. These 

issues span the breadth of the federal securities 

laws and touch on the rules the Commission 

and SROs create, as well as the ways those 

rules are implemented and enforced. It is our 

Office’s challenge, duty, and privilege to provide 

personalized assistance to the investors who seek 

our help, often as a point of first contact or as a 

last resort. 

As the retail investor’s confidential channel of 

communication with the Commission, our Office 

often learns of matters that impact large groups 

of investors and matters that have an outsized 

impact on an individual or small group of 

investors. In these circumstances, we do more than 

listen. We act. We inform and educate interested 

parties within the Commission about trending 

investor protection matters. We work with the 

Division of Enforcement to identify and thwart 

fraudulent schemes. We study and report on areas 

of widespread investor concern. We engage with 

SROs and individuals, offices, and divisions within 

the Commission to clarify existing practices, and, 

where appropriate, to highlight the harms these 

practices may cause retail investors.

Our Office operates independently of the 

Commission, yet we are bound by a core standard 

of impartiality that prevents us from taking sides on 

a given issue. Our obligation to remain impartial 

precludes us from directly advocating on behalf 

of retail investors. However, we remain singularly 

committed to amplify their voices, escalating their 

concerns when needed, and promoting the fair 

application of policies and procedures across the 

Commission and the 

SROs we oversee. 

Fiscal Year 2023 brought 

significant change 

and challenge to the 

Ombuds’ Office. Despite 

its small size, our team 

has met each challenge, 

exceeded expectations, 

and achieved significant 

milestones on behalf of 

retail investors. Among other accomplishments, 

our Office completed a landmark study of 

mandatory arbitration. We hosted a successful 

law school Investor Advocacy Clinic Summit—

broadcast live to almost 2,000 viewers—providing 

clinic students the chance to discuss the importance 

of their work. We worked closely with the 

Office of Information Technology to implement 

substantial enhancements to our Ombudsman 

MESSAGE FROM 

THE OMBUDS
32 | OFFICE OF THE INVESTOR ADVOCATE

Matter Management System (OMMS) platform, 

enhancements that will improve the user 

experience and the integrity of our data collection. 

But perhaps most importantly, we have personally 

helped over 2,600 investors, thwarting fraudulent 

schemes, providing useful information, and, 

sometimes, just listening. This is the heart of our 

work. It is work unlike any other, and, for this 

dedicated team, the work is its own reward.

We are grateful for the opportunity to personally 

serve the retail investor community in this unique 

role. In 2024, I hope that our Office will become 

a more active liaison for retail investors. We 

look forward to expanding upon and fortifying 

our relationships within the Commission, our 

relationships with stakeholders committed to 

investor protection, and especially our relationships 

with the investor communities that we serve.

Respectfully Submitted,

STACY A. PUENT

Ombuds
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 33

WHO WE ARE

In March 2023, Investor Advocate Cristina Martin 

Firvida announced the appointment of Stacy A. 

Puente as Ombuds of the Securities and Exchange 

Commission.54 Ms. Puente leads an experienced 

team of lawyers, each with differing subject matter 

expertise, all dedicated to providing personalized, 

tailored assistance to the retail investors that 

contact the Ombuds Office for help. Through 

direct engagement with investors, interested parties 

within the Commission, and external stakeholders 

committed to investor protection issues, the 

Ombuds Office fulfills its statutory role as the 

confidential liaison between retail investors and 

the Commission.55

This Ombuds’ Report56 discusses the work and 

efficacy of the Office for the Fiscal Year beginning 

October 1, 2022, through September 30, 2023.

WHAT WE DO

Exchange Act Section 4(g)(8), 15 U.S.C. § 

78d(g)(8), requires the Investor Advocate to 

appoint an Ombudsman (Ombuds) to act as a 

confidential liaison in resolving retail investors’ 

concerns and questions about the Commission 

and the self-regulatory organizations (SROs) the 

Commission oversees.57

The Ombuds is required by statute to:

(i) help retail investors resolve questions and 

complaints they may have with the Commission or with SROs the Commission oversees; 

(ii) review and make recommendations regarding 

policies and procedures that encourage 

investors to present questions to the Investor 

Advocate regarding compliance with the 

securities laws;

(iii) take steps to ensure the confidentiality of 

investor communications with our Office; and

(iv) submit semiannual reports to the Investor 

Advocate that describe the activities and 

evaluate the effectiveness of the Office.58

In carrying out our objectives, the Ombuds team 

adheres to three core standards of practice, as 

illustrated in Figure 13.

Confidentiality

The Ombuds takes necessary steps to preserve the confidentiality of communications 

with investors, although communications may be disclosed where the investor 

consents, or where the investor alleges a violation of the securities laws or other 

exigent matter

Independence

Though the Ombuds reports directly to the Investor Advocate, our office is 

independent from the SEC. The Ombud’s Report, included as a part of the Investor

Advocate’s semi-annual report to Congress, is filed without any prior review or 

comment from the Commission or other SEC staff

Impartiality 

The Ombuds does not take sides on issues—instead, our Office fields investor 

questions and complaints to clarify issues, facilitate discussions, and identify options 

and resources that address investor issues or concerns

FIGURE 13. Ombuds: Three Core Standards of Practice
34 | OFFICE OF THE INVESTOR ADVOCATE

HOW WE HELP

Figure 14 illustrates the process by which we 

receive and assist investors with their requests.

Additionally, we submit credible allegations 

of securities violations to the Division of 

Examinations and the Division of Enforcement 

for potential examination, investigation, or 

enforcement action. We study and report on issues 

of significant investor impact. We work with 

other offices and divisions across the Commission, 

as well as SROs, to assess the effects of specific 

policies or practices on retail investors. Last, we 

inform the Investor Advocate and other interested 

parties within the Commission about trending 

investor protection concerns. 

How to Reach Us

Individuals and interested parties may contact our 

Office by email, telephone, and regular mail.59

However, our primary means of corresponding 

with the public is through the OMMS,60 an 

electronic portal for receiving, responding to, and 

managing data collected from investor submissions.

Through the diligent efforts of the SEC’s Office of 

Information Technology, the Ombuds Office will 

launch a series of substantial enhancements to the 

existing OMMS system in Fiscal Year 2024. These 

enhancements are designed to increase ease of use 

for investors, expedite and standardize processes 

for Ombuds staff when responding to investor 

submissions, and more effectively track investor 

submissions by volume and other characteristics.

Review

The Ombuds team reviews 

all incoming investor 

correspondence to determine if 

and how we may assist

Research

The Ombuds team identifies the nature of 

the issue, conducts tailored research, and 

engages with appropriate personnel within 

the Commission or SROs to gather relevant 

information

Resolve

The Ombuds team works to 

resolve investor questions and 

complaints by providing investors 

with requested information and 

access to additional resources, by 

escalating certain matters through 

appropriate channels, when necessary, 

and by monitoring outcomes

FIGURE 14. Ombuds Process: Review, Research, Resolve
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 35

INVESTOR VOICES, BY THE NUMBERS 

The Ombuds team maintains records in OMMS of 

all inquiries and responses handled by our Office. 

When a new matter is received, it is assigned a label 

or “Primary Issue Category,” reflecting the nature 

of the issues raised in the submission. In tracking 

investor submissions by volume and by Primary 

Issue Category, OMMS may serve as an early 

warning system—identifying existing or potential 

problems on the horizon for retail investors.61

In Fiscal Year 2023, the Ombuds Office received 

and processed 2,605 matters. Figure 16 illustrates 

the number of investor matters received from 

October 1, 2022, to September 30, 2023, divided 

into the 12 Primary Issue Categories:62

In Fiscal Year 2023, the Ombuds team 

additionally reviewed and/or responded to 2,828 

additional emails, phone calls, and other forms 

of correspondence relating to the 2,605 investor 

matters—for a combined total of 5,433 contacts 

with or on behalf of retail investors. Figure 16 

FIGURE 15. Number of Investor Matters 

Received from October 1, 2022, to 

September 30, 2023

Atypical Matters (71) 

FINRA Complaints/Questions/Procedures (284)

Non-SEC/Other Matters (330) 

SEC Investigations/Litigation/Enforcement 

Actions (172) 

Allegations of Securities Law Violations/Fraud (383) 

Securities Laws/Rules/Regs/Procedures (100) 

Securities Ownership (8) 

SRO Rules/Procedures (10) 

Company Disclosures and Information (71) 

Investment Products/Retirement Accounts (895) 

Organized Campaigns (10) 

SEC Questions/Complaints (494) 

Total 2,828

0.5%

2.6%

0.3% 0.2%

36.1%

2.5%

15.7%

9.8%

7.5%

11.1%

4.5%

9.2%

FIGURE 16. Number of Follow-up Contacts 

with Investors Arising from Their Initial 

Submission

Atypical Matters (255)

FINRA Complaints/Questions/Procedures (194) 

Non-SEC/Other Matters (288) 

SEC Investigations/Litigation/Enforcement 

Actions (118) 

Allegations of Securities Law Violations/Fraud (240) 

Securities Laws/Rules/Regs/Procedures (68) 

Securities Ownership (6) 

SRO Rules/Procedures (8) 

Company Disclosures and Information (66) 

Investment Products/Retirement Accounts (941) 

Organized Campaigns (12) 

SEC Questions/Complaints (409) 

Total 2,605 

0.4%

0.4% 0.3%

17.5%

31.7%

2.5%

10.0%

11.7%

6.1%

13.5%

3.5%

2.5%
36 | OFFICE OF THE INVESTOR ADVOCATE

details the number of follow-up contacts with 

investors arising from their initial submissions, 

separated by Primary Issue Category.

An Early Warning System

From Fiscal Year 2022 to Fiscal 

Year 2023, the Ombuds observed a 

significant increase in submissions 

involving FINRA Complaints/

Questions/Procedures and a related uptick in 

questions surrounding digital assets. We believe the 

increase in questions and concerns submitted to the 

Ombuds regarding these areas arises from investor 

dissatisfaction with the clarity, content, and timing 

of communications from regulators about financial 

industry rules, products, and market activity. 

At the same time, as observed above in the 

discussion of RILAs,63 OIAD’s research suggests 

that disclosures about increasingly complex 

products may not sufficiently inform the investing 

public about the nature of and risks associated with 

these products. 

We believe that the OIR study, viewed in 

conjunction with increasing investor complaints 

about regulatory messaging, prompts the question 

whether regulatory communications and industry 

disclosures are creating an imbalanced landscape for 

investors, where those with less effective access to 

information are at higher risk of loss due to less 

informed investment decisions. We echo the 

concerns stated in the Message from the Investor 

Advocate, that, as the number of retail investors 

continues to grow, so will the need for improved 

communications between regulators and the public, 

as well as the need for regulators to reexamine the 

existing disclosure regime for industry participants.64

Measuring Our Progress through the Years

Since the Office of the Ombuds was 

first established in 2014, the number of 

investor matters and investor contacts 

has steadily grown. Figure 17 illustrates 

the trend toward increased investor engagement 

with the Ombuds Office. 

FIGURE 17. Volume of OMMS matters and OMMS Contacts

Contacts

New Matters

228

FY 2015

499

FY 2016

1,002

222

FY 2017

1,105

226

FY 2018

1,045

449

FY 2019

2,213

1,480

FY 2020

2,441

1,647

FY 2021

3,231

2,401

FY 2022

2,932

2,780

2023

2,828

2,605

Total Contacts

727

1,224 1,331

1,494

3,693

4,088

5,632 5,712

5,433
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 37

Between Fiscal Year 2015 and Fiscal Year 2023, 

there has been a 522 percent increase in the number 

of investor matters received, and a corresponding 

1,240 percent increase in the number of investor 

contacts arising from these matters. 

These numbers alone do not reflect the time 

and effort the Ombuds team invests in research, 

information gathering, internal and external 

collaboration to provide each investor with the 

tailored responses they seek. 

The increase in our investor engagements may 

be due to an expanding sector of retail investors, 

amplified investor interest in Commission rules 

and enforcement efforts, and our Office’s efforts to 

raise awareness of the assistance we provide. It is 

our intention to help an ever-growing number of 

investors—particularly those who need our help 

the most. 

TRENDS AND NOTABLE MATTERS—

FISCAL YEAR 2023

Digital Assets

Following the Commission’s 

announcement of litigation against 

several crypto platforms, the Ombuds 

Office received many questions and 

comments from investors about crypto products. 

Some investors questioned the SEC’s authority to 

regulate digital assets, while others supported the 

Commission’s regulatory efforts, even calling for a 

Commission rulemaking to combat fraud relating 

to cryptocurrency and digital assets. Given the 

influx in crypto-related comments and complaints 

reported in Fiscal Year 2023, we are hopeful that 

the ongoing efforts of regulators and legislators 

in this space will help mitigate investor harm and 

increase investor confidence.

Short Selling and Threshold Lists

During Fiscal Year 2023, the Ombuds 

continued to receive a high volume 

of complaints about short sales in 

various exchange-traded securities. 

Many of these complaints focused on threshold 

lists—SRO-generated lists of certain equities with 

a “fail to deliver” position for five consecutive 

settlement days.65 These investors often believed 

the inclusion of a security on a threshold list 

was evidence of abusive “naked shorting.” The 

Ombuds provided investors information about 

Regulation SHO,66 the Commission regulation 

governing the short sale of equities and clarified 

that the inclusion of an equity on a threshold list 

does not necessarily indicate the occurrence of 

abusive short selling or other impermissible trading.

SRO Communications with Investors

As noted above, many complaints 

received this Fiscal Year involved 

SRO communications with retail 

investors. These investors generally 

expressed concern that SROs were not providing 

clear or sufficient information directly to the 

retail public. Many investors held positions in 

securities impacted by SRO regulatory decisions 

and complained that SROS did not provide 

information about those regulatory decisions in 

a manner that was easily accessible and suitable 

for non-professionals. In addressing these investor 

concerns, the Ombuds engaged with staff in 

appropriate offices at the Commission to voice 

these investor concerns. 

Discovery in FINRA Arbitration

In Fiscal Year 2024, Ombuds staff 

intends to complete and report 

the findings of its study of the 

incidence and potential effects of 

abusive discovery practices in the FINRA Dispute 

Resolution forum.
38 | OFFICE OF THE INVESTOR ADVOCATE

ENGAGING WITH THE PUBLIC

2023 SEC Investor Advocacy 

Clinic Summit Overview 

On Wednesday, March 29, 2023, the Ombuds 

Office and the SEC Division of Enforcement’s 

Retail Strategy Task Force (RSTF) hosted the 

fourth annual SEC Investor Advocacy Clinic 

Summit (Summit) as a virtual event. For the 

second consecutive year, the Summit was a joint 

endeavor between the Ombuds and RSTF. The 

event, livestreamed to over 1,800 external viewers 

on the SEC’s website and to SEC staff internally, 

was intended to highlight the work of the law 

school clinics and raise public awareness of the 

services they provide. Students discussed the origin 

of the clinics and nature of their work, the role 

of mandatory arbitration in resolving brokerage 

disputes, two representative cases, resource 

allocation, and other challenges to the viability 

of the clinics. 

All 11 U.S. law school investor advocacy clinics67

shared their perspectives and engaged with SEC 

subject matter experts on pressing issues currently 

facing retail investors. Given the success of this 

and prior summits, we look forward to hosting the 

2024 Summit as a signature feature of the Ombuds’ 

commitment to retail investors and the work of the 

law school clinics.

Additional Engagement Activities 

In addition to the Summit, Ombuds staff 

participated in and attended select securities 

industry events with the goal of improving our 

service to retail investors and educating external 

groups about the services our Office can provide. 

These events included informational meetings and 

listening sessions with the American Association 

of Justice, the American Association of Retired 

Persons, international regulators, and directors of 

the law school investor advocacy clinics. Ombuds 

staff also met periodically with the Coalition of 

Federal Ombudsmen, as well as the Public Investors 

Arbitration Bar Association (PIABA), FINRA, and 

the FINRA Ombuds. 

Pursuant to the Office’s study of mandatory 

arbitration among SEC-registered investment 

advisers, the Ombuds conducted interviews 

and engaged in discussions about mandatory 

arbitration with PIABA, FINRA Dispute 

Resolution Services, the American Association 

of Individual Investors, the Securities Industry 

and Financial Markets Association, the North 

American Securities Administrators Association, 

Better Markets, Financial Services Institute, the 

American Arbitration Association, and JAMS. 
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 39

INVESTOR INITIATIVES

STUDY AND FINDINGS

Mandatory Arbitration among 

SEC-Registered Advisers 

In our Report on Objectives for Fiscal Year 2023, 

the Ombuds Office acknowledged troubling 

anecdotal information about investor experiences 

with their advisers in mandatory arbitration.68

Prompted by this information, we committed to 

initiating a study of mandatory arbitration among 

SEC-registered investment advisers (RIAs), to 

develop a “more complete understanding of RIA 

arbitration, and... identify any problematic issues 

impacting retail advisory clients.”69 What follows is 

a summary of this important study and its potential 

implications for advisory clients. 

OVERVIEW

In January 2023, the Ombuds Office, in 

coordination with the Office of Investor Research 

and the Investor Advocate Office of Chief Counsel 

(hereafter, collectively, “Staff”), launched a study 

to evaluate: (1) the occurrence of mandatory 

arbitration clauses in SEC-registered investment 

adviser agreements; (2) the occurrence of certain 

restrictive terms in mandatory arbitration clauses, 

such as damage limitations and class action 

waivers; (3) the frequency of SEC-registered adviser 

arbitration; (4) the frequency of unpaid arbitration 

awards among SEC-registered advisers; and (5) the 

effects of mandatory arbitration clauses on clients 

harmed by their advisers.70

Staff reviewed a sample of investment advisory 

agreements and compiled data regarding the 

occurrence of mandatory arbitration clauses, as 

well as the occurrence of various restrictive terms. 

To correct any potential non-representativeness of 

this sample, Staff used inverse probability weighting 

to adjust this data.

Due to the lack of publicly available information 

about SEC-registered adviser arbitration, 

Staff could neither determine the frequency of 

adviser arbitration nor the frequency of unpaid 

adviser awards. Staff also could not identify 

a representative sample of advisory clients to 

determine the effects of mandatory arbitration 

clauses. Instead, as a proxy for the perspectives of 

advisory clients, Staff interviewed eight external 

stakeholder groups identified as having information 

relevant to the issue of mandatory arbitration, and/

or as having publicly expressed opinion on the 

issue of mandatory arbitration. Their views, while 

anecdotal, provided insight into the potential harms 

and benefits of mandatory arbitration clauses for 

advisory clients.

SUMMARY OF FINDINGS

Occurrence of Mandatory Arbitration 

Clauses and Other Arbitration Terms

Based on the sample of 579 investment advisory 

agreements reviewed, Staff estimated that 

approximately 61 percent71 of SEC-registered 

advisers serving retail investor clients incorporated 

mandatory arbitration clauses into their investment 

advisory agreements. 

Of the agreements that contained mandatory 

arbitration clauses, Staff estimated the frequency 

with which advisers incorporated the specific terms 

in Table 3.
40 | OFFICE OF THE INVESTOR ADVOCATE

Frequency of Adviser Arbitration, 

Unpaid Awards

State-registered advisers, investment adviser 

representatives, and SEC-registered advisers are 

not uniformly required to disclose information 

about arbitrations with their clients.72 Moreover, 

SEC-registered advisers’ preferred dispute 

resolution fora do not track the number of adviser 

arbitrations. For these reasons, Staff could not 

obtain data about the frequency of arbitration or 

unpaid awards among SEC-registered advisers.

As a related point, private arbitrators lack 

jurisdiction over the parties after an award is 

issued. Parties to an arbitration are expected to 

abide by the terms of the arbitrator’s award.73

However, when a party fails to comply with an 

arbitration award, the other party may need to 

enforce the award through the court system and 

litigate a dispute over an unpaid award. A survey 

of federal and state case law did not yield results 

upon which to reliably estimate the frequency of 

litigation involving unpaid arbitration awards 

among advisers.

Stakeholder Perspectives74

Stakeholders unanimously agreed that mandatory 

arbitration clauses benefited advisers by, among 

other things, simplifying the dispute resolution 

process through limited discovery75 eliminating 

TABLE 3. Frequency of Specific Provisions in Mandatory Arbitration Clauses

Agreement designates a particular dispute resolution forum: 92%

When designating a forum, advisers designated the following fora:

American Arbitration Association (AAA) 83%

Financial Industry Regulatory Authority (FINRA) Dispute Resolution Services 10%

JAMS 6%

Other 1%

Agreement designates particular forum rules: 37%

When designating forum rules, advisers selected the following rules:

AAA Commercial Rules 83%

JAMS Streamlined Rules and Procedures 3%

JAMS Comprehensive Rules and Procedures 2%

AAA Securities Arbitration Supplementary Procedures 1%

Agreement designates the arbitration venue: 60%

When designating arbitration venue, percent of agreements that did not consider client’s location or 

place of business:

97%

Agreement precludes participation in class action 6%

Agreement limits claims the client may assert 5%

Agreement limits damages that may be awarded 11%

Agreement includes fee-shifting provision 18%
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 41

the right to appeal,76 maximizing privacy 

during and after the arbitration, and increasing 

both predictability and efficiency through the 

designation of a known arbitration forum with 

familiar rules. Proponents of mandatory arbitration 

further asserted that advisory clients—like their 

advisers—experienced these same benefits.

In contrast, critics of mandatory arbitration argued 

that advisers experienced these benefits at the 

expense of clients. Because advisers unilaterally 

draft their advisory agreements, critics believed 

advisers often selected the forum, the rules, and 

the venue that would likely increase costs for the 

client and favor the adviser. They also asserted that 

the limited ability to exchange information during 

discovery might prevent clients from obtaining 

evidence to prove their claims, and the inability 

to appeal would likely preclude review of an 

arbitrator’s decision. Critics also asserted the lack 

of uniform disclosure requirements for adviser 

arbitration information might allow recidivist 

advisers to conceal client allegations of wrongdoing from regulators and prospective clients. 

Stakeholders agreed, to varying degrees, that 

advisers should consistently be required to disclose 

more complete information about customer 

arbitrations and unpaid awards. Proponents 

of mandatory arbitration argued that, while 

disclosure of all customer allegations might subject 

advisers to unwarranted reputational harm, full 

and fair disclosure of allegations the adviser deems 

material would create a competitive advantage 

for honest advisers and promote fairer markets. 

Critics of mandatory arbitration more broadly 

argued that advisers’ fiduciary duty necessitated 

disclosure of customer arbitration information, 

irrespective of whether the adviser deemed the 

information material. 

Several stakeholders also stated that differences 

between the adviser and broker77 arbitration 

regimes disadvantaged advisory clients. For 

instance, some stated that certain provisions 

permissible in advisory agreements, such as class 

action waivers, damage limitations and claim 

limitations, are impermissible in agreements 

between brokers and their customers. These stakeholders further argued that such limiting terms 

negatively affect arbitral outcomes for advisory 

clients. Others stated that the costs associated with 

private adviser arbitration significantly exceed 

the costs associated with broker arbitration, and, 

in some instances, the high costs could preclude 

advisory clients from filing arbitration claims at all.

Comparison with Broker Arbitration 

A comparison of relevant rules in the FINRA Code 

of Arbitration Procedure for Customer Disputes 

(FINRA Code) supported stakeholder concerns 

about the use of restrictive terms in advisory 

agreement mandatory arbitration clauses. While 

the FINRA Code applies uniformly to disputes 

between customers and their brokers and governs 

contractual provisions relating to mandatory 

arbitration,78 advisers may choose the terms of their 

respective mandatory arbitration clauses.

As noted above, six percent of SEC-registered 

advisory agreements with mandatory arbitration 

clauses included class action waivers, five percent 

of agreements limited the types of claims that could 

be asserted, and 11 percent limited the types of 

damages that a client may seek in the arbitration. 

In contrast, the FINRA Code prohibits usage of 

class action waivers,79 prohibits language that limits 

a party’s ability to file “any claim” in arbitration,80

and prohibits language that limits the ability of 

arbitrators to make “any award.”81

Of the 60 percent of mandatory arbitration clauses 

that designated a venue for the arbitration hearing, 

97 percent designated a location that disregarded 

the client’s location. In practice, clients could be 

required to participate in an arbitration far from 
42 | OFFICE OF THE INVESTOR ADVOCATE

their place of residence, incurring travel and 

lodging expenses to attend in-person hearings. 

Under the FINRA Code, the default location 

for the arbitration venue is generally the hearing 

location nearest the customer’s residence at the time 

of the events leading to the dispute.82

A notable percentage of advisory agreements 

with mandatory arbitration clauses also imposed 

requirements on the type and/or number of 

arbitrators—e.g., requiring a panel of three 

arbitrators, or requiring arbitrators to be 

affiliated with the securities industry. Because 

each arbitrator is compensated separately, a panel 

of three arbitrators would predictably increase 

the cost associated with the arbitration. Several 

stakeholders also suggested that arbitrators with 

securities industry ties might be biased in favor of 

advisers. By comparison, the FINRA rules require 

panels to consist of a single arbitrator, unless the 

claim amount exceeds $100,000, or the parties 

jointly agree to a three-arbitrator panel.83 In cases 

with one arbitrator, the FINRA Code requires the 

selection of a public arbitrator, unaffiliated with 

the securities industry, to preside over the dispute.84

In cases with three arbitrators, the FINRA Code 

guarantees parties the ability to select a panel of all 

public arbitrators.85

Although arbitrators in FINRA DRS are not 

required to write opinions or provide explanations 

for an award, arbitrator awards must be in 

writing.86 In contrast, many advisory agreements 

included provisions that prohibited arbitrators 

from providing written awards.

Staff’s review also supported the notion that costs 

of adviser arbitration generally exceed those of 

broker arbitration. For instance, the frequent 

designation of commercial, or business-to-business, 

arbitration rules result in higher initial filing fees 

and other expenses for clients, potentially making 

the filing of a claim cost-prohibitive. Conversely, 

as noted above, the FINRA Code of Arbitration 

Procedure for Customer Disputes governs all 

disputes between brokers and their customers. In 

FINRA DRS, initial filings fees range from $50 

(for matters valued up to $1,000) to a maximum 

of $2,300 (for matters valued over $5,000,000).87

By comparison, under the AAA Commercial 

Arbitration Rules, clients bringing a matter valued 

at $75,000 or less must pay an initial filing fee 

of $925 if the panel consists of one arbitrator.88

AAA commercial arbitrations with three or more 

arbitrators are subject to a minimum initial filing 

fee of $4,400.89 In many instances, this filing fee 

alone might prevent clients from bringing claims 

against their advisers.

RECOMMENDATIONS AND 

CONCLUSIONS

Recommendations Regarding the 

Use of Restrictive Terms in Mandatory 

Arbitration Clauses

Based on Staff estimates, most investment 

advisory agreements contain mandatory 

arbitration clauses, and some contain restrictive 

terms that could drive up the costs of arbitration 

for advisory clients, and/or negatively affect the 

arbitration process or arbitration outcomes for 

advisory clients. Table 3 reflects the approximate 

frequency with which such terms are included in 

advisory agreements. 

We note that the Investment Advisers Act of 1940 

(Advisers Act) establishes a federal fiduciary duty 

for investment advisers, fundamental to advisers’ 

relationships with their clients.90 An investment 

adviser’s fiduciary duty comprises a duty of care 

and a duty of loyalty, which require an adviser 

to, at all times, act in the best interests of the 

client, and prohibit an adviser from placing its 

own interests ahead of the client’s interests.91

The adviser’s fiduciary duty is broad and applies 
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 43

to the entire relationship between the adviser 

and its client.92 It “follows the contours of the 

relationship between the adviser and its client, 

and the adviser and its client may shape that 

relationship by agreement, provided that there is 

full and fair disclosure and informed consent.”93

The fiduciary duty is enforceable through the 

antifraud provisions of the Advisers Act, which 

generally prohibit an adviser from “engaging in any 

transaction, practice, or course of business which 

operates as a fraud or deceit upon any client or 

prospective client.”94

The Commission has made clear that, while 

an adviser’s fiduciary duty may be shaped by 

agreement, the duty may not be waived.95 The 

Commission has additionally stated that, where 

certain clauses in retail advisory agreements 

purport to relieve an adviser from liability for 

nonwaivable claims, such clauses are likely to 

mislead retail clients into not exercising their legal 

rights in violation of the Advisers Act antifraud 

provisions.96 Recently, the Commission found 

that an adviser willfully violated the Advisers Act 

antifraud provisions by including such a “hedge” 

clause in its advisory agreement. 97 In so finding, 

the Commission noted the adviser had no policies 

and procedures to assess a client’s sophistication 

in the law or to explain the meaning of the clause, 

provided no enhanced disclosures regarding when 

a client may retain a right of action, and offered no 

evidence that the clause would be understood by 

retail clients.98

In similar manner, it is the view of the Office 

of the Investor Advocate that if an adviser 

includes language in an advisory agreement 

preemptively limiting the damages available 

to clients in arbitration, or limiting the types 

of claims that clients may assert against the 

adviser in an arbitration, such limiting language 

might mislead retail clients into not exercising 

their legal rights and would constitute a breach 

of the adviser’s fiduciary duty in violation of 

the antifraud provisions of the Advisers Act.99

We further believe that contractual provisions 

precluding clients from participating in class 

action lawsuits, designating an arbitration venue 

without regard to a client’s physical location, 

invoking commercial arbitration rules intended 

for business-to-business disputes, and/or imposing 

fee shifting provisions that unilaterally impose 

the costs and fees of an arbitration on the client 

have the obvious and likely intended effect 

of increasing the cost and inconvenience of 

arbitration for advisory clients. It is therefore also 

our view that, where such provisions are included 

in an advisory agreement, absent evidence the 

adviser has made effort to gauge whether the 

client understands these provisions and the client 

has provided informed consent, the adviser is 

placing its interests ahead of the client’s interests 

in violation of the fiduciary duty.

Recommendations Regarding Disclosure 

of Arbitration-Related Information

An absence of information prevented Staff from 

generating reliable statistics about the frequency of 

SEC-registered adviser arbitration or the number 

of unpaid arbitration awards. This absence of 

information is attributable to: (1) a lack of express 

arbitration-related disclosure requirements for 

SEC-registered advisers; and (2) the privatized 

nature of adviser arbitration. Both factors interact 

to obscure SEC-registered investment advisers’ 

arbitration-related information from the view of 

investors and regulators, as described below.

State-registered advisers and individual 

adviser representatives are required to disclose 

their involvement in certain types of client 

arbitrations in standardized disclosure forms.100

By comparison, SEC-registered advisers are not 

specifically required to disclose information about 
44 | OFFICE OF THE INVESTOR ADVOCATE

arbitrations with clients; rather an adviser must 

only disclose facts it deems material to the advisory 

relationship.101 The Commission previously 

considered whether to require advisers to disclose 

arbitration information in their Forms ADV, 

but determined not to require such disclosure, 

as arbitration settlements or awards might not 

reflect a finding that an adviser had violated the 

law, and disclosure might cause unwarranted 

reputational harm to the adviser.102 However, 

the Commission suggested that advisers should 

“carefully consider whether particular arbitration 

awards or settlements do, in fact, involve or 

implicate wrongdoing and/or reflect on the 

integrity of the adviser, and should be disclosed to 

clients in the brochure or through other means.”103

The Commission also stated it would “continue to 

assess whether we should require that these events 

be reported by firms registered with us.”104

It is the view of the Investor Advocate’s Office that 

an adviser’s involvement in a client arbitration 

is often material to the advisory relationship 

and should be a requisite disclosure in certain 

circumstances. We note that the Commission’s 

prior concerns about reputational harms arising 

from arbitration-related disclosures would apply 

equally to state-registered advisers, investment 

adviser representatives, and brokers, all of which 

are required to disclose certain arbitrationrelated information. We therefore believe that 

SEC-registered advisers should similarly disclose 

this information. We further believe that, to the 

extent practicable, arbitration-related disclosures 

should be harmonized across adviser types 

to decrease investor confusion and promote 

regulatory clarity.

We further note, however, that the privatized 

nature of adviser arbitration poses a significant 

obstacle in any attempt to assess the truth or 

falsity of advisers’ arbitration-related disclosures. 

As illustrated in Table 3, advisers often choose to 

arbitrate with clients in private dispute resolution 

fora such as AAA and JAMS. The SEC lacks 

jurisdiction over these private fora, and therefore 

cannot easily obtain information with which to 

confirm the existence or outcome of an adviser’s 

arbitration. These fora also do not aggregate or 

otherwise make publicly available information 

about adviser arbitration. In the absence of this 

information, regulators would ostensibly need to 

rely on the integrity of an adviser’s arbitrationrelated self-disclosures to determine whether the 

adviser satisfied its disclosure obligations. 

Conclusions

We believe precluding advisers from using 

restrictive terms in mandatory arbitration clauses 

that negatively affect investors would help create a 

fairer, more balanced framework for arbitrations 

between advisers and their retail clients. We 

further believe that establishing arbitration-related 

disclosure requirements for SEC-registered advisers 

would better enable investors and regulators 

to evaluate advisers’ prior conduct, and to 

prevent recidivist adviser misconduct. However, 

we do not believe the implementation of these 

recommendations will resolve broader fairness 

concerns associated with adviser arbitration. Where 

advisory clients are compelled to arbitrate disputes 

in a private dispute resolution forum, where 

the SEC cannot help to ensure that appropriate 

procedural protections for investors exist in that 

forum, and where the SEC cannot easily obtain 

information about underlying arbitrations in that 

forum, it is our view that retail investors might 

face procedural disadvantages that negatively 

impact arbitral outcomes. Moreover, any such 

disadvantages or negative outcomes would not be 

measurable or observable, given the opaque nature 

of privatized arbitration and lack of information 

exchange between the SEC and private dispute 

resolution fora. 
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 45

We note that Congress granted the SEC the 

authority to “prohibit, or impose conditions or 

limitations on the use of agreements that require 

customers or clients of any investment adviser 

to arbitrate any future dispute between them 

arising under the Federal securities laws, the 

rules and regulations thereunder, or the rules of 

a self-regulatory organization if it finds that such 

prohibition, imposition of conditions, or limitations 

are in the public interest and for the protection 

of investors.”105 In light of this explicit authority, 

we recommend that the Commission consider 

temporarily suspending the use of mandatory 

arbitration clauses in advisory agreements until 

further exploration of the associated costs and 

benefits to advisory clients is undertaken.

As detailed in Figure 18, we strongly encourage 

investors to learn about the differences between 

arbitration and litigation,106 and to ask 

appropriate questions of their advisers where 

mandatory arbitration clauses are included in 

advisory agreements.

Review your advisory agreement for restrictive and unfair terms, or language that might violate your 

right to recover damages if you are harmed by your adviser. Contact the SEC Ombuds to report these types of

provisions in your advisory agreement

Ask your adviser whether they are or have been named in an arbitration or civil litigation. If they have,

ask for details. If you are uncomfortable with their responses, Consider hiring another advise

Search the Investment Advisers Public Disclosure (IAPD) database on the SEC website for 

arbitration and civil litigation information about a state-registered adviser or investment adviser representative

Ask your state securities regulator for more information about your state securities adviser or 

investment adviser representative. For a full list of state securities regulators in the U.S., visit the Nor

American Securities Administrators Association website

FIGURE 18. What You Can Do . . .
46 | OFFICE OF THE INVESTOR ADVOCATE

Endnotes

1 Exchange Act § 4(g)(6), 15 U.S.C. § 78d(g)(6).

2 Exchange Act § 4(g)(6)(A)(i), 15 U.S.C. § 78d(g)(6)(A)

(i).

3 Exchange Act § 4(g)(6)(B)(i), 15 U.S.C. § 78d(g)(6)(B)

(i).

4 See Exchange Act § 4(g)(4)(B), 15 U.S.C. § 78d(g)(4)

(B).

5 SEC, SEC, NASAA, and Wisconsin DFI to Host 

Investor Roundtable in Madison, Wisconsin on 

July 25, Release No. 2023-136 (Jul. 21, 2023), https://

www.sec.gov/news/press-release/2023-136. 

6 SEC, U.S. Securities and Exchange Commission 

Investor Advisory Committee, Meeting Agenda

(Sep. 21, 2023) https://www.sec.gov/about/advisorycommittees/investor-advisory-committee/iac092123-

agenda.

7 In this section of the report, we refer to the 

Office of Investor Research (OIR) and POSITIER 

synonymously.

8 See Exchange Act § 4(g)(4)(B), 15 U.S.C. § 78d(g)(4)

(B).

9 See Exchange Act § 4(g)(4)(D-E), 15 U.S.C. § 78d(g)

(4)(D-E).

10 See Exec. Order No. 13,563, 3 C.F.R. § 13563 (2011).

11 See Exchange Act § 4(g)(4)(C), 15 U.S.C. § 78d(g)(4)

(C).

12 See U.S. House of Representatives, Consolidated 

Appropriations Act (2023), H.R. 2617, 117th Cong. 

(2022), https://www.congress.gov/bill/117th-congress/

house-bill/2617. In that Act, Congress indicated 

that “the Commission shall prepare and finalize, 

new or amended rules, as appropriate, to establish 

a new form . . . on which an issuer of a registered 

index-linked annuity may register that registered 

index-linked annuity, subject to conditions the 

Commission determines appropriate . . . with respect 

to the registered index-linked annuity.” In addition, 

Congress indicated that in designing the form, “the 

Commission shall . . . engage in investor testing; and 

incorporate the results of the testing required . . . in 

the design of the form, with the goal of ensuring that 

key information is conveyed in terms that a purchaser 

is able to understand.”

13 See SEC, Registration for Index-Linked 

Annuities; Amendments to Form N-4 for IndexLinked and Variable Annuities, Release No. 

33-11250 (Sept. 29, 2023) [88 FR 71088 (Oct. 

13, 2023)], https://www.federalregister.gov/

documents/2023/10/13/2023-21986/registration-forindex-linked-annuities-amendments-to-form-n-4-forindex-linked-and-variable.

14 See Brian Scholl et al., A Picture is Worth a 

Thousdand Dollars: Visual Aids Promote Investor 

Decisions, Journal of the Association for Consumer 

Research (2023), Volume 8, Issue 4, 416-428, https://

www.journals.uchicago.edu/toc/jacr/2023/8/4.

15 SEC, Office of the Investor Advocate, Report 

on Activities, Fiscal Year 2022 (Dec. 15, 2022), 

subsection titled “Helping Investors Make Decisions 

About Mutual Funds Using Visual Aids” in https://

dcm.sec.gov/files/fy22-oiad-sar-activities-report.pdf. 

16 Calculations based on Morningstar Intelligence 

Annuity Tool. See Morningstar, Annuity comparison 

tool: Annuity intelligence. Retrieved March 2023, 

from https://www.morningstar.com/products/annuityintelligence. 

17 See generally IRS, Publication 575 (2022), 

Pension and Annuity Income, https://www.irs.gov/

publications/p575#en_US_2022_publink1000265471.

18 See Office of the Investor Advocate RILA report, 

Investor Testing Report on Registered Index-Linked 

Annuities https://www.sec.gov/files/rila-report-092023.

pdf. 

19 Id.

20 See U.S. House of Representatives, Consolidated 

Appropriations Act (2023), H.R. 2617, 117th Cong. 

(2022), https://www.congress.gov/bill/117th-congress/

house-bill/2617.

21 The use of “KIT” in this document is consistent with 

its usage in Investor Testing Report on Registered 

Index-Linked Annuities at https://www.sec.gov/files/

rila-report-092023.pdf. Specifically, all references to 

the KIT refer to different hypothetical disclosures used 

for testing purposes. 

22 See SEC, Registration for Index-Linked 

Annuities; Amendments to Form N-4 for IndexLinked and Variable Annuities, Release No. 

33-11250 (Sept. 29, 2023) [88 FR 71088 (Oct. 

13, 2023)], https://www.federalregister.gov/

documents/2023/10/13/2023-21986/registration-forindex-linked-annuities-amendments-to-form-n-4-forindex-linked-and-variable.

23 In prior efforts, POSITIER researchers discovered 

that jargon is an important barrier to investors’ 

understanding of mutual funds. For additional 

information, see Chin et al., Jargon in Fund 

Fee Disclosures (SEC, Working Paper No. 

2023-03, 2023), https://www.sec.gov/files/jargonfund-fees-2021-01.pdf.

24 In the report, these subscales were respectively 

called: “How RILA Works”; “Appropriateness”; 

“Insurance”; and “Liquidity.” 

25 See A. M. Best, Registered Index-Linked 

Annuities Gaining Foothold in VA Segment

(2019), https://news.ambest.com/newscontent.

aspx?AltSrc=29&refnum=221068#:~:text=A%20

new%20Best’s%20Special%20Report,will%20

outpace%20other%20individual%20annuity

26 Life Insurance Marketing and Research Association, 

LIMRA: Annuities Forecast to Hover in Record 

Range of $300 Billion for Next Several Years (2023), 

https://www.limra.com/en/newsroom/industrytrends/2023/limra-annuities-forecast-to-hover-inrecord-range-of-$300-billion-for-next-several-years/.

27 See Alycia Chin et al., Framing Effects in Expectations 

Beliefs about the Stock Market (SEC, Working Paper 

No. 2023-02, 2023), https://www.sec.gov/files/sme.

pdf. 

28 See I.P. Levin et al., All Frames Are Not Created 

Equal: A Typology And Critical Analysis Of Framing 

Effects. Organizational Behavior and Human Decision 

Processes, (1998), 76(2), 149-188. 
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 47

29 Saten Kumar et al., Inflation targeting does not anchor 

inflation expectations: Evidence from firms in New 

Zealand. Brookings Papers on Economic Activity, 

2015 (Fall), 151-225.

30 See, e.g., SEC, Office of the Investor Advocate, Report 

on Activities, Fiscal Year 2020 (Dec. 29, 2020), 

available at https://www.sec.gov/files/sec-investoradvocate-report-activities-2020.pdf.

31 For example, in 2019, the estimated amount of capital 

reported as raised in private offerings under Rule 

506(b) of Regulation D was $1.5 trillion, compared 

to a total of $1.2 trillion raised in registered offerings. 

SEC, Staff Report to Congress on Regulation A / 

Regulation D Performance (2020), at 16, https://www.

sec.gov/files/report-congress-regulation-a-d.pdf.

32 See SEC, Office of the Investor Advocate, Report on 

Objectives, Fiscal Year 2024 (Jun. 29, 2023), available 

at https://dcm.sec.gov/files/fy24-oiad-sar-objectivesreport.pdf.

33 For example, under Rule 506(b) of Regulation D, 

an issuer may sell securities to an unlimited number 

of accredited investors and up to 35 non-accredited 

investors who are financially sophisticated.

34 See, e.g., Letter from the North American Securities 

Administrators Association, Inc. to Erik F. Gerding, 

Director, Division of Corporation Finance, SEC, 

RE: Private Market Reforms (Mar. 7, 2023), 

available at https://www.nasaa.org/wp-content/

uploads/2023/03/2023-03-07-Letter-to-ErikGerding-Regarding-Private-Market-Reforms.pdf (last 

visited Oct. 19, 2023) [hereinafter NASAA Letter]; 

Sophistication or Discrimination? How the Accredited 

Investor Definition Unfairly Limits Investment Access 

for the Non-wealthy and the Need for Reform, 

Hearing Before the Subcomm. on Capital Markets, H. 

Comm. on Fin. Serv., 118th Cong. (2023), available 

at https://financialservices.house.gov/calendar/

eventsingle.aspx?EventID=408510; Andrew N. 

Vollmer, Abandon the Concept of Accredited Investors 

in Private Securities Offerings (Mercatus Working 

Paper, Oct. 2020), available at https://www.mercatus.

org/research/working-papers/abandon-conceptaccredited-investors-private-securities-offerings-0.

35 See SEC Investor Advisory Committee, Meeting 

Agenda (Sep. 21, 2023), available at https://www.sec.

gov/about/advisory-committees/investor-advisorycommittee/iac092123-agenda, and Webcast, SEC 

Investor Advisory Committee Meeting (Sep. 21, 

2023), available at https://www.youtube.com/

watch?v=mko5hUzhtRw and https://www.youtube.

com/watch?v=x3PAWKr_Lyk [hereinafter Webcast: 

September 2023 IAC Meeting].

36 See SEC, Investor Bulletin: Private Placements under 

Regulation D (Aug. 2022), https://www.sec.gov/oiea/

investor-alerts-and-bulletins/private-placements-underregulation-d-investor-bulletin.

37 See, e.g., NASAA Letter; Better Markets, Special 

Report: The SEC Must Stop Bleeding Public Markets 

Dry (Apr. 8, 2022), available at https://bettermarkets.

org/wp-content/uploads/2022/04/BetterMarkets_

Public_vs_Private_Markets_Report_April2022.

pdf. (last visited Oct. 19, 2023); and Webcast: 

September 2023 IAC Meeting. See also Caroline 

A. Crenshaw, Commissioner, SEC, Big “Issues” in 

the Small Business Safe Harbor: Remarks at the 

50th Annual Securities Regulation Institute (Jan. 

30, 2023), available at https://www.sec.gov/news/

speech/crenshaw-remarks-securities-regulationinstitute-013023.

38 Id.

39 These concerns are expressed, for example, in a 

number of the comment letters submitted in response 

to the Commission’s 2013 proposed amendments 

to Regulation D and Form D, which have not been 

adopted. See Comments on SEC, Amendments 

to Regulation D, Form D and Rule 156, Release 

No. 33-9416 (July 10, 2013) [78 FR 44806 

(July 24, 2013)], https://www.federalregister.gov/

documents/2013/07/24/2013-16884/amendments-toregulation-d-form-d-and-rule-156.

40 See SEC, Newsroom, SEC Proposals: Market 

Structure, https://www.sec.gov/newsroom/marketstructure-proposals-december-2022. 

41 See FINRA, FINRA Requests Comment on a Proposal 

to Require Members to Provide Rule 605 Order 

Execution Quality Reports to FINRA for Centralized 

Publication, Regulatory Notice 23-10 (May 31, 

2023), available at https://www.finra.org/rulesguidance/notices/23-10. 

42 See SEC, Short Position and Short Activity Reporting 

by Institutional Investment Managers, Release 

No. 34-98738 (Oct. 13, 2023) [88 FR 75100 

(Nov. 1, 2023)], https://www.federalregister.gov/

documents/2023/11/01/2023-23050/short-positionand-short-activity-reporting-by-institutionalinvestment-managers. 

43 See SEC, Reporting of Securities Loans, Release 

No. 34-98737 (Oct. 13, 2023) [88 FR 75644 

(Nov. 3, 2023)], https://www.federalregister.gov/

documents/2023/11/03/2023-23052/reporting-ofsecurities-loans. 

44 See, e.g., Federal Bureau of Investigation, 2022 

Internet Crime Report (Mar. 10, 2023), at 3, 

available at https://www.ic3.gov/Media/PDF/

AnnualReport/2022_IC3Report.pdf (noting the FBI’s 

Internet Crime Complaint Center received 800,944 

complaints in 2022 with a potential total loss of 

more than $10.2 billion); see e.g., Ponemon Institute 

and IBM Security, Cost of a Data Breach Report 

2023 (Jul. 24, 2023), https://www.ibm.com/reports/

data-breach (noting the average cost of a data breach 

in 2023 was USD 4.45 million, a 15% increase over 3 

years); see also SEC, EXAMS Risk Alert, Safeguarding 

Customer Records and Information at Branch Offices 

(Apr. 26, 2023), https://www.sec.gov/files/risk-alertsafeguarding-info-branch-offices-042623.pdf.
48 | OFFICE OF THE INVESTOR ADVOCATE

45 See SEC, Cybersecurity Risk Management for 

Investment Advisers, Registered Investment 

Companies, and Business Development Companies, 

Release No. 33-11028 (Feb. 9, 2022) [87 FR 13524 

(Mar. 9, 2022)], https://www.federalregister.gov/

documents/2022/03/09/2022-03145/cybersecurityrisk-management-for-investment-advisers-registeredinvestment-companies-and-business.

46 SEC, Cybersecurity Risk Management, Strategy, 

Governance, and Incident Disclosure, Release 

No. 33-11216 (July 26, 2023) [88 FR 51896 

(Aug. 4, 2023)], https://www.federalregister.gov/

documents/2023/08/04/2023-16194/cybersecurityrisk-management-strategy-governance-and-incidentdisclosure. 

47 See SEC, Regulation S-P: Privacy of Consumer 

Financial Information and Safeguarding Customer 

Information, Release No. 34-97141 (Mar. 15, 

2023) [88 FR 20616 (Apr. 6, 2023)], https://www.

federalregister.gov/documents/2023/04/06/2023-

05774/regulation-s-p-privacy-of-consumer-financialinformation-and-safeguarding-customer-information.

48 SEC, Regulation Systems Compliance and Integrity, 

Release No. 34-97143 (Mar. 15, 2023) [88 FR 

23146 (Apr. 14, 2023)], https://www.federalregister.

gov/documents/2023/04/14/2023-05775/

regulation-systems-compliance-and-integrity. See

SEC, Cybersecurity Risk Management Rule for 

Broker-Dealers, Clearing Agencies, Major SecurityBased Swap Participants, the Municipal Securities 

Rulemaking Board, National Securities Associations, 

National Securities Exchanges, Security-Based Swap 

Data Repositories, Security-Based Swap Dealers, and 

Transfer Agents, Release No. 34-97142 (Mar. 15, 

2023) [88 FR 20212 (Apr. 5, 2023)], https://www.

federalregister.gov/documents/2023/04/05/2023-

05767/cybersecurity-risk-management-rule-for-brokerdealers-clearing-agencies-major-security-based-swap.

49 This list of problematic products identified by the SEC 

is based on staff analysis of the alerts and bulletins 

issued by the SEC’s Office of Investor Education and 

Advocacy and the SEC’s Division of Examinations 

during Fiscal Year 2022. See SEC, Office of Investor 

Education and Advocacy, Investor Alerts and 

Bulletins, https://www.sec.gov/investor/alerts (last 

visited Nov. 2, 2023); see also SEC, Division of 

Examinations, Risk Alerts, https://www.sec.gov/exams

(last visited Nov. 2, 2023).

50 See NASAA, Top Investor Threats, https://www.nasaa.

org/investor-education/fraud-center/top-investorthreats/ (last visited Nov. 2, 2023). 

51 This list of red flags is based on educator fraud tools 

developed by the FINRA Foundation during FY 2023. 

See FINRA Foundation, https://www.conemifyoucan.

org/fraud-tools/index.html (last visited Nov. 2, 2023).

52 PCAOB, Investor Advisory—Exercise Caution with 

Third-Party Verification/Proof of Reserve Reports

(Mar. 8, 2023), https://pcaobus.org/resources/

information-for-investors/investor-advisories/

investor-advisory-exercise-caution-with-thirdparty-verification-proof-of-reserve-reports; Erica Y. 

Williams, Chair, PCAOB, Statement on Rise in Audit 

Deficiency Rates (Jul. 25, 2023), https://pcaobus.org/

news-events/speeches/speech-detail/chair-williamsstatement-on-rise-in-audit-deficiency-rates.

53 Exchange Act Section 4(g)(8), 15 U.S.C. § 78d(g)

(8), requires the Investor Advocate to appoint an 

Ombuds to act as a confidential liaison in resolving 

retail investors’ concerns and questions about the 

Commission and the self-regulatory organizations 

(SROs) the Commission oversees.

54 As used in this report, the term “Ombuds” may refer 

to the Ombuds, the Ombuds and staff in the Office of 

the Ombuds, and, at times, to staff, contractors, and 

interns in the Office of the Investor Advocate directly 

supporting the Ombuds function.

55 See Exchange Act Section 4(g)(8)(B)(i), 15 U.S.C. § 

78d(g)(8)(B)(i).

56 Among other things, the Ombuds is required 

to “submit a semi-annual report to the Investor 

Advocate that describes the activities and evaluates 

the effectiveness of the Ombuds during the preceding 

year” (Ombuds’ Report). See Exchange Act Section 

4(g)(8)(D), 15 U.S.C. § 78d(g)(8)(D). The Ombuds’ 

Report on Activities, submitted to Congress each 

December, describes the activities and discusses the 

effectiveness of the Ombuds during the preceding 

Fiscal Year.

57 Exchange Act § 4(g)(8)(B), 15 U.S.C. § 78d(g)(8)(B).

58 See generally Exchange Act Section 4(g)(8), 15 U.S.C. 

§ 78d(g)(8).

59 Please visit our website at www.sec.gov/ombudsman

for additional information. 

60 The OMMS Form, a web-based, mobile-friendly 

form permitting the submission of inquiries, 

complaints, and documents directly to the 

Ombuds, guides the submitter through a series of 

questions specifically designed to elicit information 

concerning matters within the scope of the 

Ombuds’ function. In addition, the OMMS Form 

allows submitters to easily upload and submit 

related documents for staff review. When an 

OMMS matter record is created, Ombuds staff can 

review the matter details and communicate with 

the investor via the OMMS platform, https://omms.

sec.gov.

61 For further discussion on this point, see Ombuds 

Report section “OMMS as Early Warning System,” 

infra.

62 To note, matters categorized as “Non-SEC/Other 

Matters” refer to matters outside the jurisdiction of 

the SEC, which fall within the jurisdiction of another 

regulatory agency. Matters characterized as “Atypical 

Matters” refer to matters where the submitter’s 

characterization or description of the issue makes it 

difficult to determine the nature of the complaint.
REPORT ON ACTIVITIES: FISCAL YEAR 2023 | 49

63 See Report at Section Research and Investor Testing, 

Research Highlights from This Year, Registered IndexLinked Annuities at page 9.

64 See Report at Section Message of the Investor 

Advocate at page 1.

65 For more information on threshold securities, see

SEC, Fast Answers—Threshold Securities, available at 

https://www.sec.gov/answers/threshold.

66 For more information on Regulation SHO, see SEC, 

Short Sales, Release No. 34-50103 (July 28, 2004) [69 

FR 48008 (Aug. 6, 2004)], https://www.federalregister.

gov/documents/2004/08/06/04-17571/short-sales.

67 Participating law schools included (in alphabetical 

order): Benjamin N. Cardozo School of Law, Cornell 

Law School, Fordham University School of Law, 

Howard University School of Law, New York Law 

School, Northwestern Pritzker School of Law, Pace 

University School of Law, Seton Hall University 

School of Law, St. John’s University School of Law, 

University of Miami School of Law, and the University 

of Pittsburgh School of Law.

68 SEC, Office of the Investor Advocate, Report on 

Objectives, Fiscal Year 2023 (Jun. 30, 2022), at 

27-28, available at https://dcm.sec.gov/files/sec-officeinvestor-advocate-report-objectives-fy2023.pdf.

69 Id. at 28.

70 The SEC Division of Investment Management, 

Division of Trading and Markets, Division of 

Examinations, Division of Economic and Risk 

Analysis, and the Office of the General Counsel also 

contributed to the contents of this study.

71 The margin of error for a 95% confidence interval 

on these estimates varies but is no greater than +/- 6 

percentage points.

72 State-registered advisers and investment adviser 

representatives are required to disclose certain 

information about arbitrations with clients. See 

Uniform Application for Investment Adviser 

Registration, Form ADV Part 1B, Item 2.E (applicable 

to state-registered advisers); Uniform Application 

for Securities Industry Regulation or Transfer, Form 

U4, Item 14.I (applicable to individual adviser 

representatives). By comparison, SEC-registered 

advisers are not specifically required to disclose 

information about arbitrations with clients, but 

they must disclose “all material facts relating to the 

advisory relationship.” See Uniform Application 

for Investment Adviser Registration, Form ADV 

Part 2, Uniform Requirements for the Investment 

Adviser Brochure and Brochure Supplements, General 

Instruction 3.

73 See American Arbitration Association, What Happens 

after the Arbitrator Issues an Award at 1 (“Many 

parties will voluntarily follow the arbitrator’s decision; 

however, the AAA and the arbitrator do not have 

the authority to actually make a party do what the 

award says.”), https://www.adr.org/sites/default/files/

document_repository/AAA229_After_Award_Issued.

pdf (last visited Sep. 15, 2023).

74 The stakeholders interviewed for purposes of this 

study include American Association of Individual 

Investors; Better Markets, Inc.; Financial Industry 

Regulatory Authority Dispute Resolution Services; 

Financial Services Institute, Inc.; Investment 

Adviser Association; North American Securities 

Administrators Association; Public Investors Advocate 

Bar Association; and Securities Industry and Financial 

Markets Association.

75 See, e.g., FINRA, The Neutral Corner, Vol. 2-2011 

(2011), at 1, https://www.finra.org/sites/default/files/

Publication/p123535.pdf (“Discovery in FINRA 

arbitration is more limited than discovery under the 

Federal Rules of Civil Procedure or state discovery 

rules.”)

76 See supra note 73, “What Happens after the 

Arbitrator Issues an Award,” at 2, (“There is no right 

to appeal in arbitration like there is in court”).

77 The term “broker” as used in this report refers to 

broker-dealers required to register with the SEC and 

with FINRA, along with their associated persons, as 

the term “associated person” is defined under FINRA 

Rule 1011(b). 

78 FINRA Rule 12101.

79 FINRA Rule 12204(a).

80 FINRA Rule 2268(d)(2).

81 FINRA Rule 2268(d)(4).

82 FINRA Rule 12213.

83 FINRA Rule 12401. To note, claims of $50,000 or 

less must be adjudicated by one arbitrator. 

84 FINRA Rule 12402(a). For the definition of a “public 

arbitrator,” see FINRA Rule 12100(aa).

85 FINRA Rule 12403.

86 See FINRA, Decision and Award, https://

www.finra.org/arbitration-mediation/decisionaward#:~:text=Arbitration%20Award,date%20

the%20record%20is%20closed.

87 FINRA Rule 12900. 

88 American Arbitration Association, Commercial 

Arbitration Rules and Mediation Procedures, 

Administrative Fee Schedules, at 1 (Amended and 

Effective May 1, 2018), https://www.adr.org/sites/

default/files/Commercial_Arbitration_Fee_Schedule_1.

pdf (last visited Sep. 15, 2023).

89 Id. at 2.

90 See SEC, Commission Interpretation Regarding 

Standard of Conduct for Investment Advisers

(“Fiduciary Interpretation Release”), Release No. 

IA-5248 (June 5, 2019) [84 FR 33669, 33670 

(July 12, 2019)], https://www.federalregister.gov/

documents/2019/07/12/2019-12208/commissioninterpretation-regarding-standard-of-conduct-forinvestment-advisers.

91 Id. at 33671.

92 Id. at 33670.

93 Id. at 33671 (emphasis added).

94 Id. See also 15 U.S.C. §80b-6(2).

95 Id. at 33672, n. 31.
50 | OFFICE OF THE INVESTOR ADVOCATE

96 See id. (“In our view, however, there are few (if any) 

circumstances in which a hedge clause in an agreement 

with a retail client would be consistent with those 

antifraud provisions, where the hedge clause purports 

to relieve the adviser from liability for conduct as to 

which the client has a nonwaivable cause of action 

against the adviser provided by state or federal law. 

Such a hedge clause generally is likely to mislead those 

retail clients into not exercising their legal rights, in 

violation of the antifraud provisions...”).

97 See In the Matter of Comprehensive Capital 

Management, Inc., Order Instituting Administrative 

Cease-and-Desist Proceedings Pursuant to Sections 

203(e) and 203 (k) of the Investment Advisers Act 

of 1940, Making Findings and Imposing Remedial 

Sanctions, and a Cease-and-Desist Order, Admin. 

Proc. File No. 3-20700, Rel. No. 5943, at p. 5 (Jan. 

11, 2022), available at https://www.sec.gov/files/

litigation/admin/2022/ia-5943.pdf (hedge clause was 

“inconsistent with an adviser’s fiduciary duty and 

the [Fiduciary Interpretation Release] because it may 

mislead [adviser’s] retail clients into not exercising 

their legal rights.”).

98 Id. at 72.

99 See, e.g., id. at 5 (where hedge clause stated, in part, 

that “[adviser] will not be liable for any incidental, 

indirect, special, punitive or consequential damages,” 

the hedge clause was inconsistent with an adviser’s 

fiduciary duty and violated the antifraud provisions of 

the Advisers Act because it might mislead retail clients 

into not exercising their legal rights).

100 See infra note 72.

101 See id.

102 See SEC, Amendments to Form ADV (“Form ADV 

Release”), Release No. IA-3060 (July 28, 2010) [75 

FR 49233, 49240 (Aug. 12, 2010)], https://www.

federalregister.gov/documents/2010/08/12/2010-

19617/amendments-to-form-adv.

103 Id.

104 Id.

105 Investment Advisers Act of 1940, 15 U.S.C. § 

80b-5(f). 

106 See, e.g., SEC, Investor Alert and Bulletin, BrokerDealer/Customer Arbitration (Jun. 14, 2022), 

available at https://www.sec.gov/oiea/investor-alertsand-bulletins/broker-dealercustomer-arbitrationinvestor-bulletin (describing general differences 

between litigation and arbitration with brokerdealers).

U.S. SECURITIES AND EXCHANGE COMMISSI

Washington, DC 20549