REPORT ON ACTIVITIES FISCAL YEAR 2017

Office of the 

Investor

 Advocate

U.S. SECURITIES AND EXCHANGE COMMISSION

OFFICE OF THE INVESTOR ADVOCATE

REPORT ON ACTIVITIES

FISCAL YEAR 2017

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 A Report on Objectives is due not 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 On June 30, 2016, 

the Office of the Investor Advocate (Office) filed a Report on Objectives for Fiscal Year 2017, which 

identified six policy areas that the Office would focus upon during the year.3

 Similarly, the Office 

filed a Report on Objectives for Fiscal Year 2018 on June 29, 2017.4

In addition to the Report on Objectives, a Report on Activities is due no later than December 31 

of each year.5 The Report on Activities shall describe the activities of the Investor Advocate during 

the immediately preceding fiscal year. Among other things, the report must include information on 

steps the Investor Advocate has taken to improve the responsiveness of the Securities and Exchange 

Commission (Commission or SEC) and self-regulatory organizations (SROs) to investor concerns, 

a summary of the most serious problems encountered by investors during the reporting period, 

identification of Commission or SRO action taken to address those problems, and recommendations 

for administrative and legislative actions to resolve problems encountered by investors.6

This Report on Activities for Fiscal Year 2017 is organized primarily around our six areas of policy 

focus that were announced in our Report on Objectives for Fiscal Year 2017. In each of those 

areas, we have strived to understand the needs of American investors and the implications of policy 

choices. In a variety of ways, as more fully described below, we have identified proposed policy 

decisions that are likely to harm investors, have made recommendations for regulatory changes 

that will ease or resolve the problems encountered by investors, and have taken steps to improve 

the responsiveness of the Commission and SROs to investor concerns. The reporting period for this 

Report on Activities runs from October 1, 2016 to September 30, 2017 (Reporting Period).

REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | i
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.

Functions of the Investor Advocate Reporting Obligation

According to Exchange Act Section 4(g)

(4), 15 U.S.C. § 78d(g)(4), the Investor 

Advocate shall:

(A) assist retail investors in resolving 

significant problems such investors 

may have with the Commission or 

with SROs;

(B) identify areas in which investors 

would benefit from changes in the 

regulations of the Commission or the 

rules of SROs;

(C) identify problems that investors have 

with financial service providers and 

investment products;

(D) analyze the potential impact on 

investors of proposed regulations of 

the Commission and rules of SROs; 

and

(E) to the extent practicable, propose 

to the Commission changes in 

the regulations or orders of the 

Commission and to Congress any 

legislative, administrative, or personnel 

changes that may be appropriate to 

mitigate problems identified and to 

promote the interests of investors.

According to Exchange Act Section 4(g)

(6)(B), 15 U.S.C. § 78d(g)(6)(B), the Investor 

Advocate shall submit to Congress, not later 

than December 31 of each year, a report 

on the activities of the Investor Advocate 

during the immediately preceding fiscal year. 

This “Report on Activities” must include the 

following:

(I) appropriate statistical information and 

full and substantive analysis;

(II) information on steps that the Investor 

Advocate has taken during the 

reporting period to improve investor 

services and the responsiveness of 

the Commission and SROs to investor 

concerns;

(III) a summary of the most serious 

problems encountered by investors 

during the reporting period; 

(IV) an inventory of the items described in 

subclause (III) that includes—

(aa) identification of any action taken 

by the Commission or the SRO 

and the result of such action;

(bb) the length of time that each item 

has remained on such inventory; 

and 

(cc) for items on which no action 

has been taken, the reasons for 

inaction, and an identification of 

any official who is responsible for 

such action;

(V) recommendations for such 

administrative and legislative actions 

as may be appropriate to resolve 

problems encountered by investors; and 

(VI) any other information, as determined 

appropriate by the Investor Advocate.

ii | OFFICE OF THE INVESTOR ADVOCATE
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | iii

CONTENTS

MESSAGE FROM THE INVESTOR ADVOCATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

REPORT ON ACTIVITIES AND RECOMMENDATIONS

RELATING TO THE FISCAL YEAR 2017 POLICY AGENDA . . . . . . . . . . . . . . . . . . . . . 3

Public Company Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Equity Market Structure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Municipal Market Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Accounting and Auditing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Corporate Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Fund Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

PROBLEMATIC INVESTMENT PRODUCTS AND PRACTICES. . . . . . . . . . . . . . . . . . . . 11

Scams and Schemes Related to Natural Disasters. . . . . . . . . . . . . . . . . . . . . . . . . 13

Below Minimum Denomination Positions in Municipal Securities. . . . . . . . . . . . . . . . 13

INVENTORY OF INVESTOR ADVOCATE RECOMMENDATIONS 

AND SEC OR SRO RESPONSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

OMBUDSMAN’S REPORT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Service by the Numbers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Service Behind the Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Standards of Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Problem Areas for Retail Investors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

Outreach Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Outlook for Fiscal Year 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

SUMMARY OF IAC RECOMMENDATIONS AND SEC RESPONSES. . . . . . . . . . . . . . . . .37

END NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
“Each member of our team is dedicated to 

serving the needs of American investors, 

whether in helping to resolve problems 

investors may have encountered with the 

Commission or SROs, conducting investor 

research to help the Commission make more 

data-driven policy decisions, or advocating 

for rule changes that will make investors’ 

nest eggs more secure.”
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 1

MESSAGE FROM THE

INVESTOR ADVOCATE

During Fiscal Year (FY) 2017, the Office of 

the Investor Advocate experienced its first 

transition to a new administration. This led 

to the confirmation of a new SEC Chairman and 

the hiring of new leadership with key rulemaking 

responsibilities. At the end of the fiscal year, 

we were awaiting the arrival of two additional 

Commissioners. We look forward to continuing our 

work with these new leaders to pursue policies that 

meet the needs of investors. 

This Report on Activities summarizes the policy 

work that our Office performed during FY 2017, 

and it reflects the priorities we announced in June 

2016 within our Report on Objectives for FY 2017. 

However, this Report does not give an exhaustive 

account of our activities. In total, during the course 

of the year we reviewed 16 significant Commission 

rulemakings, 444 rule proposals and other notices 

from the self-regulatory organizations, and 33 

exemptive applications that were filed with the 

Commission. 

During a transition to new Commission leadership, 

rulemaking activity at the Commission typically 

slows. As a result, policy staff in our Office had 

an opportunity to look beyond the agenda we 

announced in our Report on Objectives and 

develop expertise on additional topics of emerging 

importance. For example, we have studied the 

role of proxy advisors, trends in shareholder 

engagement, and the underwriting and distribution 

process for corporate debt. 

While these issues are 

not the subject of current 

rulemakings, our deeper 

understanding of these and 

other issues may lead to 

future advocacy efforts. 

Aside from our policy 

work, the other activities 

of the Office continue to 

gain momentum. With 

Commission approval, we have begun to conduct 

investor research—including surveys and focus 

groups—to determine the best methods to disclose 

information to investors. To kick off this initiative, 

we brought together many of the leading experts 

in economics, law, marketing, and behavioral 

science to help us examine the existing research. 

This “Evidence Summit,” which was webcast live 

on March 10, 2017, attracted more than 12,000 

viewers from 120 countries. 
2 | OFFICE OF THE INVESTOR ADVOCATE

The SEC Ombudsman, Tracey McNeil, and her 

staff have continued to make great strides in helping 

to resolve matters in which investors are dissatisfied 

with the service or activities of the Commission 

or self-regulatory organizations. In particular, as 

described more fully in the Ombudsman’s Report, 

the Ombudsman team has developed a new 

electronic platform for processing investor inquiries 

and tracking their resolution.

It is a distinct honor to work with such talented and 

caring staff in the Office of the Investor Advocate.

Each member of our team is dedicated to serving the 

needs of American investors, whether in helping to 

resolve problems investors may have encountered 

with the Commission or SROs, conducting investor 

research to help the Commission make more 

data-driven policy decisions, or advocating for rule 

changes that will make investors’ nest eggs more 

secure. I am truly grateful for the work our staff 

does every day.

As always, I would be pleased to provide further 

information to Members of Congress.

Sincerely,

Rick A. Fleming

Investor Advocate
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 3

REPORT ON ACTIVITIES AND 

RECOMMENDATIONS

RELATING TO THE FISCAL YEAR 2017 

POLICY AGENDA

On June 30, 2016, the Office of the 

Investor Advocate filed a Report on 

Objectives for FY 2017.7 The Report 

identified six key policy areas that would be the 

primary focus of the Office during FY 2017: public 

company disclosure, equity market structure, 

municipal market reform, accounting and auditing, 

corporate governance, and fund fees and expenses. 

This Report on Activities describes our activities 

and recommendations within each of those policy 

areas during FY 2017.8

PUBLIC COMPANY DISCLOSURE

As described in our prior reports, the Commission 

has undertaken a multi-year, comprehensive 

Disclosure Effectiveness Initiative to review 

and modernize public company reporting 

requirements in Regulation S-K and Regulation 

S-X. The initiative is, at least in part, responsive 

to Congressional mandates, including one in the 

Fixing America’s Surface Transportation (FAST) 

Act of 2015.9 For instance, pursuant to the FAST 

Act, on November 23, 2016 the Commission 

published a report containing recommendations 

from a staff study on how to modernize and 

simplify requirements in Regulation S-K.10 The 

FAST Act report recommendations and related 

rulemakings are intended to update substantive 

disclosure requirements and improve the manner 

in which information is delivered. 

Also during FY 2017, the Commission on its 

own initiative proposed amendments that would 

require the use of the Inline XBRL format for the 

submission of public company financial statement 

information11 and adopted amendments to make it 

easier for investors and other market participants 

to find and access exhibit documents in registration 

statements and periodic reports.12 Additionally, the 

Commission published a request for comment on 

decades-old guidance on disclosure concerning bank 

holding companies’ lending and deposit activities 

and loan portfolios.13

In numerous meetings with Commissioners and 

staff over the course of FY 2017, our Office 

provided informal recommendations on each of 

these rulemakings. For example, we encouraged 

the Commission to advance the proposal regarding 

Inline XBRL because we believe it will lead to 

improvement in the quality and accessibility of data 

submitted by public companies. Since 2009, the 

SEC has been requiring public companies to file 

two versions of every financial statement—once 

as a plain-text document, and again as machinereadable data.14 Many users of the machine-readable 

version have noted the prevalence of tagging errors 

that inhibit the reliability of the data. Inline XBRL 

enables the filing of a single version that is both 

human-readable and machine-readable, which 

should lead to a reduction in those errors. On 

October 24, 2016, the Investor Advocate gave a 

speech explaining the value of structured data for 

report preparers and investors, as well as the broader 

benefits of standardization in financial reporting.15

We supported several of the recommendations in 

the FAST Act report. Some of the recommendations, 

such as requiring the inclusion of hyperlinks to 

documents listed in exhibit indexes, were modest 
4 | OFFICE OF THE INVESTOR ADVOCATE

and long overdue. We also encouraged bigger 

steps to modernize the disclosure framework. 

For instance, we encouraged the Commission 

to consider requiring the disclosure of legal 

entity identifiers for registrants and significant 

subsidiaries.16 A legal entity identifier (LEI) is a 

20-digit, alpha-numeric code that, similar to a 

bar code, connects to key reference information 

enabling precise and unique identification of the 

legal entity. The U.S. Department of the Treasury’s 

Office of Financial Research has encouraged 

regulators to adopt this standard because the 

standard enables data interoperability and thereby 

enhances risk assessment capabilities. Initially, the 

target was counterparties trading derivatives in 

international markets; however, that more narrow 

application gave way to broader adoption at the 

market level for both public and private company 

identification. Ultimately, if the Commission and 

other regulatory agencies require companies to 

obtain and use LEIs, it will be easier for investors 

and other users to pull together information about a 

company from multiple sources and conduct a more 

thorough analysis of the company.17

Investor Outreach

We have observed that the Commission’s formal 

rulemaking process generally has limited success in 

obtaining substantive feedback from investors. In 

two speeches during FY 2017, the Investor Advocate 

spoke of the need to try different strategies to 

ensure that the interests of investors are considered 

in policymaking. In a speech on November 19, 

2016, he described the predicament, remarking 

that notwithstanding the thoughtful comments 

that the Commission had received on its Disclosure 

Effectiveness Initiative, the comment file seemed 

to be largely missing the insights of investors and 

buy-side analysts who pore over 10-Ks and other 

disclosures.18 In another speech given on February 

24, 2017, the Investor Advocate outlined three 

strategies to improve investor engagement in SEC 

rulemaking: direct outreach to investors, increased 

use of investor research, and greater engagement 

with the Investor Advisory Committee.19

During the Reporting Period, our Office engaged 

in direct outreach to investors in five cities. We met 

with individual investors and professional portfolio 

managers and analysts who consume information 

that public companies are required to disclose. 

We discussed how these market participants 

make decisions to buy and sell securities, what 

information sources they utilize, and what data is 

most valuable to them. Our goal was to find out 

what the Commission could do to help make the 

disclosures more useful. 

These conversations provide valuable information 

for our advocacy efforts. We regularly share such 

insights with our SEC colleagues, and we also 

share lessons learned from investors in more formal 

ways. For example, in a speech given on May 9, 

2017, the Investor Advocate related an insight on 

why institutional investors who engage in active 

management tend to have little interest in shares 

of micro- and small-cap public companies.20 The 

speech was about enhancing investor demand for 

initial public offerings and reflected the perspective 

of asset managers with whom we had spoken. 

EQUITY MARKET STRUCTURE

In FY 2017, the Office worked with Commission 

staff and relevant SROs to encourage equity market 

structure reforms designed to enhance market 

resilience, efficiency, transparency, and fairness. 

We continued to analyze proposed rules, including 

significant Commission proposals concerning 

alternative trading venue regulation and the 

disclosure of broker order handling activity, to 

examine their potential impact on investors. We 

spent considerable time and effort advocating in 

formal and informal ways for improvements that 

would benefit and protect investors.

As noted in last year’s Report on Activities, in 

November 2015, the Commission proposed 

significant amendments to Regulation ATS to 

enhance the operational transparency of venues 

that trade listed equity securities.21 In September 

2016, our Office submitted a comment letter 
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 5

to the Commission in support of the proposed 

amendments.22 In our letter, we suggested a modest 

expansion of certain aspects of the proposal in order 

to enhance the operational transparency of venues 

that trade fixed income securities, including those 

that solely trade government securities.23 Since that 

time, we have continued to advocate for greater 

transparency and encourage the Commission to 

adopt a final rule in the near future. 

Several efforts continue to be underway to improve 

Regulation NMS.24 In July 2016, the Commission 

proposed rules that, for the first time, would 

require broker-dealers to disclose the handling of 

institutional orders to customers under existing 

Rule 606 of Regulation NMS.25 This would provide 

customers with better information to evaluate the 

quality of execution for the orders they place.26 We 

have evaluated the proposal, including questions 

surrounding the proposed definition of institutional 

order and its impact on the ability of institutional 

customers to obtain information about all their 

orders, and we have encouraged the Commission to 

adopt a final rule in the near future. 

In addition to reviewing Commission rulemakings, 

the Office of the Investor Advocate is responsible 

for analyzing the potential impact on investors of 

proposed rules of SROs.27 In furtherance of this 

objective, the Office has analyzed the potential 

impact of various SRO proposals related to equity 

market structure. For example, in November 

2016, the Financial Industry Regulatory Authority 

(FINRA) proposed a new rule to prevent layering 

and spoofing by broker-dealers by creating a process for expedited suspension proceedings.28 This 

proposal was substantially similar to a rule adopted 

in the prior fiscal year by the Bats BZX Exchange, 

where, acting under our Office’s statutory authority, 

we had recommended that the Commission approve 

the proposed rule amendment and encouraged 

other SROs to make similar efforts to expedite 

their regulatory processes when clear evidence of 

manipulative trading is identified.29

During the Reporting Period, there were numerous 

other SRO rule proposals that we monitored closely. 

Often, we chose not to formally comment upon 

them if we considered the proposals favorable for 

investors. As examples, the Bats EDGA Exchange, 

one of the smaller exchanges by volume, replaced its 

taker-maker inverted pricing model with a simple, 

low fee model,30 and the NYSE MKT (now NYSE 

American) similarly lowered its transaction fees to 

just two cents per 100 shares for traders on both 

sides of an exchange transaction.31 These lower 

exchange trading fees could reduce a broker-dealer’s 

conflict of interest with respect to seeking best 

execution of a customer’s order.

We continue to monitor progress on the 

implementation of the Commission’s Consolidated Audit Trail, which is intended to enhance, 

centralize, and generally update the regulatory 

data infrastructure available to market regulators.32

In our view, this is a development of monumental 

importance because, once implemented, regulators 

will have ready access to all trade and order data, 

facilitating more prompt and complete analysis 

of market events such as the May 6, 2010 “Flash 

Crash” that saw U.S. equity and futures markets 

experience a sudden breakdown of orderly 

trading. The data also will make it easier for the 

Commission and other regulators to detect practices 

such as front-running, churning, and insider trading, 

so the new system has the potential to eliminate 

or significantly curtail abuses that have plagued 

investors for decades. Of course, it is imperative 

that the trading data be guarded from cyber 

intrusions that would cause harm to investors and 

the markets, but we encourage policymakers to not 

lose sight of the enormous potential benefits of the 

Consolidated Audit Trail. 

In addition, the Office continues to monitor SRO 

activity to address concerns about trading speeds. 

In May 2017, the Commission approved a proposal 

by NYSE American to adopt a 350-microsecond 

speedbump, largely borrowing the same mechanism 
6 | OFFICE OF THE INVESTOR ADVOCATE

used by the Investors’ Exchange LLC (IEX) 

since last year.33 In July 2017, the Commission 

approved Nasdaq’s Extended Life Priority Order 

Attribute, noting that it was intended to benefit 

retail investors by providing enhanced order book 

priority to retail order flow that would otherwise 

be farther down in the order book queue.34 As we 

did with the IEX exchange application in the prior 

fiscal year, we monitored the comment process and 

evaluated these proposals to ensure that any such 

devices and order types will truly benefit investors 

and serve the public interest.

The Office also has monitored the developments 

in the on-going Tick Size Pilot, now more than 

halfway through its two-year program, which 

requires the national securities exchanges and 

FINRA to widen the minimum quoting and trading 

increments—or “tick sizes”—for stocks of some 

smaller companies.35 The pilot data coming over the 

next year should allow the Commission to assess 

whether wider tick sizes enhance the market quality 

of these smaller stocks for the benefit of issuers 

and investors.36

In addition to analyzing active SEC and SRO 

rulemakings, we also monitor the work of the 

Commission’s Equity Market Structure Advisory 

Committee (EMSAC),37 with an eye toward 

championing ideas and concepts that appear most 

likely to enhance equity market structure for the 

benefit of investors. For example, on July 8, 2016, 

the EMSAC recommended that the Commission 

propose a pilot program to adjust the existing 

access fee cap under Regulation NMS Rule 610. 

We support this recommendation and have urged 

the Commission to implement a pilot program that 

will give the Commission the ability to evaluate 

the impact of so-called “maker-taker” access fee 

structures on equity exchanges.38

MUNICIPAL MARKET REFORM

Throughout FY 2017, the Office of the Investor 

Advocate reviewed proposed rules, rule amendments, and requests for comment relating to the 

regulation of the fixed income markets and, in 

particular, municipal securities markets. The Office 

reviewed twenty-five such proposals, making it a 

priority to consider the impact on retail investors 

of each proposed rule and rule amendment.39

Of particular interest during the Reporting Period, 

the Office recommended that the Commission 

approve proposals from FINRA and the Municipal 

Securities Rulemaking Board (MSRB) to require 

mark-up disclosure.40 As described in prior 
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 7

Reports from our Office, FINRA and the MSRB 

have engaged in a multi-year effort to increase 

transparency of pricing for retail investors in 

transactions involving fixed income securities.41 The 

Office of the Investor Advocate actively participated 

in multiple rounds of public comment42 and, when 

FINRA and the MSRB proposed divergent methods 

for improving price disclosure, we called for a 

consistent approach that would minimize investor 

confusion.43 We also indicated the elements from 

each proposal that we believed would serve the 

interests of investors. Specifically, we supported the 

use of “prevailing market price” for calculating the 

mark-up or mark-down (and “looking through” 

transactions with affiliates to determine that price), 

and we argued that disclosure should be mandated 

whenever the dealer bought and sold the bond on 

the same trading day.44

Late in FY 2016, FINRA and the MSRB sought 

Commission approval of two related rule proposals 

that would, for the first time, require the disclosure 

of mark-ups and mark-downs to retail investors 

when they buy or sell bonds.45 These proposed rule 

changes incorporated many suggestions made by 

the Office of the Investor Advocate and generally 

followed the Office’s recommended course of 

action. Accordingly, on November 7, 2016, the 

Office formally recommended that the Commission 

approve the proposed rule changes.

On November 17, 2016, the Commission issued 

an Order granting approval of FINRA’s and the 

MSRB’s proposed rule changes.46 FINRA and 

the MSRB announced that the new disclosure 

requirements and prevailing market price guidance 

would become effective on May 14, 2018.47 FINRA 

and the MSRB also issued guidance relating to the 

new mark-up disclosure requirements in July 2017.48

In addition to our advocacy regarding markup disclosure, the Office has reviewed other 

proposals and actively engaged with the MSRB, 

Commissioners, and Commission staff regarding 

those issues. For example, as further described 

below in the section entitled “Problematic 

Investment Products and Practices,” we have 

reviewed the MSRB’s proposals to modify their 

rules related to transactions below minimum 

denominations,49 and we are working to address 

the root causes of this problem apart from their 

rulemaking process. We have also supported 

the efforts of the MSRB and the Commission 

to improve the disclosure of bank loans and 

other financial obligations that may impair 

the creditworthiness of an issuer of municipal 

securities.50

ACCOUNTING AND AUDITING

During the Reporting Period, our Office closely 

followed developments at the SEC, the Financial 

Accounting Standards Board (FASB), and the Public 

Company Accounting Oversight Board (PCAOB) 

that would have a significant impact on the financial 

information disclosed to investors. In particular, 

we engaged with FASB on a proposal related to the 

definition of materiality and with the PCAOB on a 

proposal to enhance the audit reporting model. 

FASB issued a pair of proposals in 2015 to remove 

its own definition of materiality and instead 

rely on the courts to provide one.51 One of the 

proposals asserted that FASB’s current definition is 

“inconsistent with the legal concept of materiality in 

the United States,” as defined by the U.S. Supreme 

Court.52 Several investors and interested parties, 

including the SEC Investor Advisory Committee, 

have expressed concerns that the proposed changes 

would allow issuers to reduce their level of financial 

reporting and their transparency to investors.53

FASB held a public roundtable discussion on the 

topic on March 17, 2017. This gave FASB an 

opportunity to hear a range of views from investors, 

accounting professionals, and others. The Investor 

Advocate attended the event, along with his 

primary advisor on accounting and auditing issues, 

Stephen Deane. Following that discussion, the 

Office submitted a comment letter to FASB,54 in 

which we proposed a fresh approach based on two 
8 | OFFICE OF THE INVESTOR ADVOCATE

earlier documents: FASB’s Concept Statement 

No. 255 and the SEC’s Staff Accounting Bulletin 

No. 99.56 Those documents align with the Supreme 

Court definition and offer illustrative examples 

and guidance on how to apply that definition in 

the context of financial statements. Our Office 

continues to monitor this issue, and we hope our 

proposal can serve as the basis for a path forward. 

On May 11, 2016, the PCAOB re-proposed a rule 

that would require the auditor’s report to identify 

all critical audit matters, or CAMs, that required 

especially challenging, subjective, or complex 

auditor judgment, and to disclose information on 

the auditor’s response to each CAM. We submitted 

a comment letter to the PCAOB expressing our 

support for the new standard, which we believe 

will contribute to the ability of investors and 

others to analyze companies, form a multifaceted 

understanding of them, and make informed 

investment decisions.57 On June 1, 2017, the 

PCAOB adopted the new standard as a final rule 

subject to SEC approval,58 and the Commission 

approved the rule on October 23, 2017.59 As 

noted in our comment letter, it will be important 

to monitor the implementation of the new rule to 

ensure that the communication of CAMs does not 

devolve into mere boilerplate language. In addition, 

it will be important to assess the impact on investor 

understanding and to see how investors actually use 

the enhanced audit report.60

On August 22, 2017, Mr. Deane represented 

our Office at an accounting conference in Tulsa, 

Oklahoma. In his remarks, he outlined our views on 

both the FASB materiality issue and the PCAOB’s 

final rule on the auditor’s reporting model.61

CORPORATE GOVERNANCE

On October 26, 2016, the Commission proposed 

amendments to the proxy rules that would require 

the use of universal ballots in contested director 

elections.62 A universal ballot is a proxy card 

that includes both management’s nominees and a 

dissident shareholder’s nominees. 

Our Office, along with the Investor Advisory 

Committee, has supported the transition to 

universal ballots because it would allow 

shareholders to vote for their preferred 

combination of management and shareholder 

nominees. Under the present regime, they can 

do so only if they attend the meeting and vote in 

person; otherwise, their choice is typically limited 

to one slate or the other. The rulemaking also 

included amendments to the form of proxy and 

proxy statement disclosure requirements to specify 

clearly the applicable voting options and voting 

standards in all director elections. 

The comment period for the proposed rule closed 

on January 9, 2017, and a final rule has not yet 

been adopted.

FUND FEES AND EXPENSES

United States-registered investment companies 

(including open-end mutual funds, exchange-traded 

funds, closed-end funds, and unit investment trusts) 

managed approximately $19.2 trillion in assets 

at the end of calendar year 2016, an increase of 

approximately $1.1 trillion over the amount at 

year-end 2015.63 Those assets under management 

include some of the investments of more than 

95 million U.S. retail investors.64 Mutual funds 

remain popular among households—retail 

investors held 89 percent65 of the approximately 

$16.3 trillion of mutual fund assets at the end 

of 2016.66 Exchange-traded funds accounted 

for approximately $2.5 trillion of assets under 

management by the end of 2016.67

While there are fees and expenses associated with all 

of these assets under management, some investors 

may not necessarily understand the amount they 

are paying, what exactly they are paying for, nor 

the impact of costs on the long-term value of their 

investments. Some of these costs relate directly 

to the management and operation of the funds 

themselves. In addition, there may also be layers of 

fees that investors pay to compensate investment 

advisers, broker-dealers, or other financial 

professionals for the services they provide.68
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 9

During FY 2017, we observed evidence of a shift 

toward lower fund fees and expenses among 

several of the largest fund complexes.69 In its 

May 23, 2017 study of U.S. open-end mutual 

funds and exchange-traded funds, Morningstar 

reported that, “on average, investors paid lower 

fund expenses in 2016 than ever before.”70

Specifically, the Morningstar study found that the 

asset-weighted average expense ratio across funds 

(excluding money market funds and funds of 

funds) was 0.57 percent in 2016, compared with 

0.61 percent in 2015 and 0.65 percent three years 

ago.71 According to Morningstar, this “cost decline 

of 7 percent from the year prior was the largest 

ever, based on data going back to 1990.”72

The Morningstar study noted that the decline in 

average fees that investors pay for their funds has 

coincided with (and is a result of) the increase in 

market share of passive funds from 23 percent 

in 2012 to 32 percent in 2016.73 According to 

Morningstar, the asset-weighted average cost for 

passive funds is 0.17 percent, as compared to 

0.75 percent for the average active fund.74 The 

Morningstar study concluded, among other things, 

that “the decline in average mutual fund fees paid by 

investors” is based largely on “investors’ migration 

to lower-cost funds” rather than on fee reductions 

by the most widely held funds.75 Indeed, there is 

evidence beyond the Morningstar study that the 

expense ratios of some funds have actually increased 

as they have suffered substantial outflows.76

In light of these developments, we are particularly 

interested in investor behavior surrounding the 

disclosure of fund fees and expenses. To gain 

insight into investor perspectives on fund fees and 

expenses, in FY 2017 we launched an investor 

research and testing effort to measure, among 

other things, investor behavior with respect to fund 

fee and expense disclosure. This investor testing 

research project, which is part of a larger testing 

initiative known as Policy Oriented Stakeholder 

and Investor Testing for Innovative and Effective 

Regulation (POSITIER) that encompasses several 

research streams, seeks to inform the rulemaking 

process with evidence obtained from surveys and 

specific testing projects. As part of that effort, on 

March 10, 2017, we hosted the Commission’s 

first-ever “Evidence Summit” to discuss strategies 

for raising retail investors’ understanding of key 

investment characteristics such as fees, risks, returns, 

and conflicts of interest. The Evidence Summit 

convened academics and practitioners from multiple 

disciplines (e.g., economics, business, psychology) 

who presented their research on these various issues 

and on the subject of disclosure generally.

The initial focus of POSITIER is on understanding 

household behavior and responses with respect to 

retail investors. We are conducting POSITIER with 

the assistance of one or more outside contractors 

and are employing established methodologies of 

social science research, including, among other 

things, focus groups, structured interviews, and 

other surveys. The fund fee and expense disclosure 

research stream of POSITIER could include, 

for example, topics such as the effectiveness of 

dollar-denominated fee and expense disclosure as 

compared to disclosure expressed in percentage 
10 | OFFICE OF THE INVESTOR ADVOCATE

terms, the utility of standardized cost disclosure 

generally, and ways to provide further context 

for the disclosure. We are especially interested in 

research that may yield behavioral insights that 

could be useful for future policy decisions.

The fund fee and expense disclosure research 

under POSITIER is responsive to the Investor 

Advisory Committee’s April 2016 recommendation 

that the Commission “explore ways to improve 

mutual fund cost disclosures” with the goal of 

enhancing investors’ understanding of the actual 

costs they bear when investing in mutual funds and 

the impact of those costs on total accumulations 

over the life of their investments.77 In making 

that recommendation, the IAC suggested that, in 

the short-term, “the best way to make investors 

more conscious of costs” would be “through 

standardized disclosure of actual dollar amount 

costs on customer account statements.”78 The IAC 

encouraged the Commission, as part of a longer 

term effort to improve disclosures, to “explore 

ways to provide context for cost information in 

order to improve investor understanding of the 

impact of those costs.”79 They also encouraged 

the Commission “to test various approaches to 

determine which are the most effective in informing 

investors of the costs of their own funds, or funds 

they are considering purchasing, and the long-term 

impact of those costs.”80 In prepared remarks at 

that IAC meeting, SEC Commissioner Michael S. 

Piwowar voiced his support for a “robust investor 

testing program that examines the efficacy of 

various mutual fund cost disclosures.”81
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 11

PROBLEMATIC INVESTMENT 

PRODUCTS AND PRACTICES

Among the statutory duties of the Investor 

Advocate, the Investor Advocate is 

required to identify problems that investors 

have with financial service providers and investment 

products. Exchange Act Section 4(g)(6)(B) mandates 

that the Investor Advocate, within the annual 

Report on Activities, shall provide a summary of 

the most serious problems encountered by investors 

during the preceding FY. The statute also requires 

the Investor Advocate to make recommendations for 

such administrative and legislative actions as may be 

appropriate to resolve those problems.82

To determine the most serious problems related to 

financial service providers and investment products, 

staff of the Office of the Investor Advocate reviewed 

information from the following sources:

§	Investor Alerts, Tips, and Bulletins issued by the 

SEC, FINRA, and the North American Securities 

Administrators Association, Inc. (NASAA) 

during FY 2017;

§	The SEC’s Office of Compliance Inspections and 

Examinations’ Examination Priorities for 2017;83

§	SEC enforcement actions and FINRA 

disciplinary actions during the Reporting Period;

§	NASAA’s Annual Report,84 2017 Enforcement 

Report,85 and Top Investor Threats;86

§	SEC and SRO staff reports providing guidance 

and interpretations relating to investment 

products;

§	Discussions and correspondence with SRO 

staff, including an October 17, 2017, letter 

from Lynnette Kelly, Executive Director, MSRB, 

highlighting municipal market practices that may 

have an adverse impact on retail investors;87 and

§	Discussions and correspondence with securities 

and investor advocacy focused law school 

clinics.88
12 | OFFICE OF THE INVESTOR ADVOCATE

The table below lists certain problematic products 

or practices during FY 2017 as reported by these 

sources. Although not exhaustive, the lists reflect 

some of the concerns of these organizations. Details 

regarding these products and practices are available on 

these organizations’ websites.

SEC89 NASAA90

• Initial Coin Offerings

• Investment Fees and Expenses

• Advertising

• Online Binary Option Schemes

• Cybersecurity Including Ransomware Alerts

• Stock Recommendations on Investment

Research Websites

• Online Security Relating to Investment Accounts

• Wrap Fee Programs Suitability, Effectiveness of

Disclosure, Conflicts of Interest, and Brokerage

Practices

• Microcap Stocks

• Scams and Schemes Relating to Natural Disasters

and Fake Forms 4 Sent to Investors

• Excessive Trading in Customer Accounts

• Simple Agreement for Future Equity in

Crowdfunding for Investors

• Emerging Financial Technologies Such as

Cryptocurrency Trading

• Online Binary Option Schemes

• Scams and Schemes Relating to Natural Disasters

• Senior Fraud

• Unregistered Products/Unlicensed Salesmen

• Promissory Notes

• Oil/Gas Investments

• Real Estate-Related Investments

• Ponzi Schemes

FINRA91 MSRB92 Law School Clinics93

• Initial Coin Offerings • Municipal Market Practices Such • Suitability

• Recovery Scams as Pennying94 and Filtering95

• On-Line Mobile Investment

• Binary Options & Binary Option

Follow-up Schemes

• Below Minimum Denomination

Positions Created by Investment

Adviser Allocations

Applications

• Unregistered Securities Offerings

• Public Non-Traded REITs

• Inherited IRAs

• Municipal Market Disclosure

Practices (e.g., Bank Loan

• Variable and Whole Life Insurance

Policies

• Customer Advisory Centers Disclosures) • Margin Accounts

• Risk Related to Bond Duration • Price Fairness and Transparency • Options

• Crowdfunding Risk • Overconcentration in Energy

Stocks and Funds and Proprietary

• Scams & Schemes Including Products of a Broker-Dealer

Recovery Scams, Online Job

Interview Scams, and Stock Fraud

in Wake of Natural Disasters

Each of the products and practices listed above 

presented problems for investors during the 

Reporting Period. Based on our review of the 

resources described above and consultations 

with knowledgeable professionals, however, we 

will highlight two areas of concern: scams and 

schemes related to natural disasters, and municipal 

bond positions that are below the minimum 

denomination. Other issues, including Simple 

Agreements for Future Equity in crowdfunding 

investments,96 binary options,97 public non-traded 

REITS,98 municipal market disclosure practices,99

and sales practices involving variable annuities100

have been highlighted in our previous reports.
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 13

SCAMS AND SCHEMES RELATED TO 

NATURAL DISASTERS

Hurricanes, floods, wildfires, and other disasters 

often give rise to investment scams. These scams 

can take many forms, including that of promoters 

touting companies purportedly involved in 

cleanup, repair, and recovery efforts, trading 

programs or real estate remediation programs that 

falsely guarantee high returns, and classic Ponzi 

schemes where new investors’ money is used to pay 

earlier investors. 

In classic pump-and-dump scams, a fraudster 

disseminates false news reports to pump up the 

stock price of small companies so they can sell 

shares they own at artificially high prices. These 

scams are circulated through spam email and 

other marketing tools, promising high returns for 

small, thinly-traded companies that supposedly 

will reap huge profits from recovery and cleanup 

efforts. For example, promoters may tout new 

water-purification technologies or electricitygenerating devices. 

Given the high number of hurricanes and natural 

disasters in recent months, we anticipate a 

resurgence of these types of scams. Fortunately, 

the SEC, FINRA, and NASAA have all issued 

alerts to warn investors of these potential scams.101

These alerts provide tips for investors, including 

inexperienced investors who may have received 

compensation from insurance companies, to help 

them avoid falling victim to fraudulent schemes. 

The Office of the Investor Advocate will do our 

part to warn investors of these dangers.

BELOW MINIMUM DENOMINATION 

POSITIONS IN MUNICIPAL SECURITIES

Municipal bond offerings specify a “minimum 

denomination,” which represents the smallest 

amount of municipal bonds that a municipal 

securities dealer may sell to an investor in a single 

transaction. Typically, the minimum denomination 

amount is $5,000; however, municipal issuers 

may set higher minimum denominations (typically 

$100,000) for municipal bonds that are considered 

unsuitable for non-institutional investors because 

they present a higher default risk.102

MSRB Rule G-15(f) generally prohibits brokers, 

dealers, and municipal securities dealers from 

effecting transactions with customers in municipal 

securities in an amount below the minimum 

denomination specified in bond offering documents, unless the transaction falls within certain 

exceptions.103 The SEC enforces this rule, and the 

Commission has sanctioned several municipal 

securities dealers for improper sales below the 

minimum denomination.104 However, not all 

positions below the minimum denomination are 

created by municipal securities dealers. In fact, 

there are several scenarios that may create a below 

minimum denomination position in a customer 

account, such as the exercise of a call provision in 

an amount below the minimum denomination or 

the division of an estate as the result of death 

or divorce.105

Once created, positions below minimum 

denomination are problematic, particularly for 

retail investors. Although MSRB Rule G-15 

provides a mechanism for retail investors holding 

below minimum denomination positions to exit 

the position, these options are limited and may not 

be attractive to dealers and other investors. This 

impairs the ability of the bondholder to resell it, 

which negatively affects the price.106
14 | OFFICE OF THE INVESTOR ADVOCATE

In an effort to reduce the number of below minimum denomination positions and alleviate the 

resulting illiquidity, the MSRB initially proposed 

changes to Rule G-15 and subsequently proposed 

a new Rule G-49.107 On January 24, 2017, after 

receiving comments on those proposals, the MSRB 

filed with the Commission its proposal to create 

MSRB Rule G-49 on Transactions Below the 

Minimum Denomination of an Issue.108 However, 

during its quarterly meeting on April 26-27, 

2017, the MSRB Board of Directors discussed the 

comments received by the Commission relating 

to the proposed amendments, and the Board of 

Directors determined that it was “desirable to 

obtain more information and, if possible, greater 

consensus, regarding any proposed amendments.”109

To provide time for meaningful outreach with 

stakeholders and to obtain additional information, 

the MSRB withdrew the proposed rule it had filed 

with the Commission.110

We are hopeful that the MSRB will continue to 

pursue this important initiative to protect the 

interests of investors in municipal securities. In 

the meantime, we believe the SEC can take steps 

to address some of the underlying causes of the 

problem. In particular, as described by MSRB 

Executive Director Lynnette Kelly in a recent letter 

to the Investor Advocate, it appears that investment 

advisers are a “common cause” of the problem 

because they may distribute municipal securities 

among multiple customer accounts and thereby 

break the minimum denomination, which renders 

the positions less liquid.111 We have begun to 

discuss this issue with colleagues at the SEC who 

oversee investment advisers, and we are hopeful this 

problematic practice will be addressed even in the 

absence of an MSRB rulemaking. 
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 15

INVENTORY OF INVESTOR 

ADVOCATE RECOMMENDATIONS 

AND SEC OR SRO RESPONSES

Pursuant to Exchange Act Section 4(g)(4), 

the Office of the Investor Advocate is 

required to identify areas in which investors 

would benefit from changes in the regulations of 

the Commission or the rules of self-regulatory 

organizations. To the extent practicable, we are also 

expected to propose to the Commission changes 

in the regulations or orders of the Commission 

and to Congress any legislative, administrative, 

or personnel changes that may be appropriate to 

mitigate problems identified and to promote the 

interests of investors.112

We engage in advocacy for investors in various 

ways. Most often, our written advocacy is in the 

form of a comment letter that is included in the 

public comment file. Our expectation is that our 

comments will be given due weight and that our 

recommendations will be addressed in a substantive 

way within the order or release in which a 

proposed amendment is approved or disapproved. 

However, we also have the authority to submit 

more formal recommendations directly to the 

Commission. Exchange Act Section 4(g)(7) requires 

the Commission to establish procedures requiring 

a formal response to all such recommendations 

not later than three months after the date of such 

submission.113 Of course, while the Commission 

must respond to the Investor Advocate’s recommendations, it is under no obligation to agree with 

or act upon the recommendations.

Exchange Act Section 4(g)(6) requires us to provide, 

within our Reports on Activities, an inventory of 

the most serious problems encountered by investors 

during the report period. The inventory must 

identify: any action taken by the Commission or 

SRO and the result of such action; the length of 

time that each item has remained on the inventory; 

and for items on which no action has been taken, 

the reasons for inaction, and an identification of any 

official who is responsible for such action.

To satisfy Section 4(g)(6), we provide the 

following inventory of comment letters and formal 

recommendations in which we call for action by 

the Commission or an SRO.114 We are very selective 

in choosing the issues to address in comments or 

recommendations and, accordingly, we believe these 

issues are among the most serious potential problems 

for investors. These matters are discussed in greater 

detail in the preceding sections of this Report.
16 | OFFICE OF THE INVESTOR ADVOCATE

Nature and Date of 

Submission

Recommendation of 

Investor Advocate

Action Taken by 

Commission or SRO

Reason for Inaction, 

If Applicable, and 

Responsible Official

Comment Letter, dated 

December 11, 2015, to MSRB 

and FINRA115

Encouraged adoption 

of consistent markup 

disclosure rules that 

would utilize a full trading 

day timeframe and be 

calculated using the 

“prevailing market price.”

On August 15, 2016, 

and September 7, 2016, 

respectively, FINRA and 

the MSRB submitted 

proposed amendments, 

which largely followed our 

recommendations, to the 

SEC. The proposals were 

approved by the SEC on 

November 17, 2016.

Action Complete

Comment Letter, dated 

March 31, 2016, to MSRB116

Supported proposed 

guidance for the 

determination of 

“prevailing market price,” 

with suggestions to 

address transactions with 

affiliated parties. 

On September 7, 2016, 

the MSRB submitted 

the proposed guidance, 

which largely followed our 

recommendations, to the 

SEC. The proposal was 

approved by the SEC on 

November 17, 2016.

Action Complete

Comment Letter, dated 

August 15, 2016, to PCAOB117

Supported proposal for the 

auditor’s report to include 

discussion of critical audit 

matters, auditor tenure, and 

additional improvements.

On June 1, 2017, PCAOB 

adopted the new standard, 

subject to SEC approval. 

The SEC approved the rule 

on October 23, 2017.

Action Complete

Comment Letter, dated 

September 9, 2016, to 

Commission 118

Supported proposal to 

require greater disclosure 

by ATSs that transact 

in NMS stocks, and 

encouraged Commission 

to make current Form 

ATS public for ATSs that 

transact in fixed income 

securities, including 

government securities.

Pending at end of 

Reporting Period.
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 17

Nature and Date of 

Submission

Recommendation of 

Investor Advocate

Action Taken by 

Commission or SRO

Reason for Inaction, 

If Applicable, and 

Responsible Official

Formal Recommendation, 

dated November 7, 2016, to 

the Commission119

Recommended approval of 

FINRA and MSRB proposals 

to require disclosure of 

mark-ups and mark-downs 

from prevailing market 

price on retail customer 

confirmations relating to 

certain transactions in fixed 

income securities.

On November 17, 2016, the 

Commission approved the 

proposed rule changes. 

Action Complete

Comment Letter, dated 

July 11, 2017, to FASB120

Recommended new 

guidance on materiality 

based upon SAB 99 and 

CON 2 in lieu of proposed 

standard.

Pending at end of 

Reporting Period.

REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 19

OMBUDSMAN’S REPORT

As set forth in Exchange Act Section 4(g)(8), 

15 U.S.C. § 78d(g)(8), the Ombudsman 

is required to: (i) act as a liaison between 

the Commission and any retail investor in resolving 

problems that retail investors may have with the 

Commission or with self-regulatory organizations; 

(ii) review and make recommendations regarding 

policies and procedures to encourage persons 

to present questions to the Investor Advocate 

regarding compliance with the securities laws; 

and (iii) establish safeguards to maintain the 

confidentiality of communications between 

investors and the Ombudsman.121

The Ombudsman is also required to “submit a 

semi-annual report to the Investor Advocate that 

describes the activities and evaluates the effectiveness 

of the Ombudsman during the preceding year” 

(Ombudsman’s Report).122 The Ombudsman’s 

Report must be included in the semi-annual reports 

submitted by the Investor Advocate to Congress. To 

maintain reporting continuity, the Ombudsman’s 

Report included in the Investor Advocate’s Report 

on Objectives will describe the Ombudsman’s 

activities during the first six months of the current 

fiscal year and provide the Ombudsman objectives 

and outlook for the following full fiscal year. The 

Ombudsman’s Report included in the Investor 

Advocate’s Report on Activities will provide a look 

back on the Ombudsman’s activities during the 

full preceding fiscal year. Accordingly, this report 

provides a look back on the Ombudsman’s activities 

for the full fiscal year period from October 1, 2016 

through September 30, 2017 (Reporting Period). 

SERVICE BY THE NUMBERS

The Ombudsman123 assists 

retail investors and other 

individuals with concerns 

or complaints about the 

SEC or an SRO the SEC 

oversees in a variety of 

ways, including, but not 

limited to:

§	Listening to inquiries, 

concerns, complaints, 

and related issues;

§	Helping persons explore available SEC options 

and resources;

§	Clarifying certain SEC decisions, policies, and 

practices;

§	Taking objective measures to informally resolve 

matters that fall outside of the established 

resolution channels and procedures at the SEC; 

and

§	Acting as an alternate channel of communication 

between retail investors and the SEC.
20 | OFFICE OF THE INVESTOR ADVOCATE

In practice, individuals often seek the Ombudsman’s 

assistance as an initial point of contact to resolve 

their inquiries or as a subsequent or ongoing point of 

contact when they are dissatisfied with the outcome, 

rate of progress, or resolution. To respond to 

inquiries effectively and efficiently, the Ombudsman 

monitors the volume of inquiries and the staff 

resources devoted to addressing the particular 

concerns raised. The Ombudsman tracks:

§	all inquiries received by or referred to the 

Ombudsman;

§	all related correspondence and communications 

to and from Ombudsman staff; 

§	staff engagement and resources utilized to 

respond to inquiries; and

§	inquiry activity and status from receipt to 

referral or resolution.

The Ombudsman maintains inquiry data records to: 

(i) identify and respond to problems retail investors 

have with the Commission or with SROs, (ii) track 

and analyze inquiry volume, (iii) categorize and 

report data, trends, and concerns, and (iv) provide 

data-driven support for recommendations presented 

by the Ombudsman to the Investor Advocate for 

review and consideration. 

Inquiry volume is counted in terms of matters and 

contacts. The initial contact—a new, discrete inquiry 

received by or referred to the Ombudsman—is the 

contact that establishes the matter. When a matter 

is established, the Ombudsman reviews the facts, 

circumstances, and concerns raised, and assesses 

the staff engagement and resources that may be 

required to respond to, refer, or resolve the matter.

The matter established by the initial contact may 

generate subsequent contacts—related inquiries 

and communications to or from the Ombudsman 

staff deriving from the matter. Subsequent contacts 

often require further staff attention to answer 

additional questions, explain or clarify proposed 

resolution options, or respond to challenging or 

persistent communications from an investor. This 

system of counting matters and contacts helps the 

Ombudsman quickly assess volume and resource 

issues related to each matter. 

Data Across Primary Issue Categories

During the Reporting Period, retail investors, 

industry professionals, concerned citizens, and other 

interested persons contacted the Ombudsman for 

assistance on 226 matters covering eleven primary 

issue categories. 

Allegations of Securities Law Violations / Fraud (44)

Atypical Matters (25)

Company Disclosures and Information (19)

FINRA Arbitration / Rules / Procedures (5)

Investment Products / Retirement Accounts (29)

Non-SEC / Other Matters (22)

SEC Investigations / Litigation / Enforcement Actions (9)

SEC Questions / Complaints (27)

Securities Laws / Rules / Regulations / Procedures (19)

Securities Ownership (17)

SRO Rules / Procedures (10)

4% 2%

20%

12%

11%

10%

8%

8%

8%

4%

13%

Matters by Primary Issue Category 

October 1, 2016–September 30, 2017

During the Reporting Period, these 226 matters 

generated 1,105 subsequent contacts, for a total of 

1,331 contacts. A small number of matters relating 

to SEC investigations yielded a disproportionate 

number of contacts due to persistent investor 

communications about specific complaints, the 

submission of additional allegations and documents 

to support those complaints, and questions about 
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 21

the status of SEC investigations and enforcement 

actions. The chart that follows displays the 

distribution of the 1,331 contacts by primary 

issue category:

Allegations of Securities Law Violations / Fraud (119)

Atypical Matters (44)

Company Disclosures and Information (110)

FINRA Arbitration / Rules / Procedures (56)

Investment Products / Retirement Accounts (108)

Non-SEC / Other Matters (187)

SEC Investigations / Litigation / Enforcement Actions (338)

SEC Questions / Complaints (140)

Securities Laws / Rules / Regulations / Procedures (157)

Securities Ownership (50)

SRO Rules / Procedures (22)

25%

11% 12%

9%

8%

8%

4%

4%

14%

3% 2%

Contacts by Primary Issue Category 

October 1, 2016–September 30, 2017

How the Numbers Inform our Efforts

The Ombudsman tracks matter and contact data to 

maintain a comprehensive view of the allocation of 

staff resources and to identify matters and contacts 

that significantly alter workflow volumes, call for 

the realignment of Ombudsman staff assignments, 

or require added staff support to manage effectively. 

The data also informs resource allocation considerations related to proposed program development, 

training, and outreach efforts. By tracking the 

distribution of matters and contacts across primary 

issue categories, the data helps the Ombudsman 

identify potential areas of concern or interest and 

enables the Ombudsman to act as an early warning 

system to alert agency leaders about the number 

and potential impact of particular issues and 

concerns raised by retail investors and others.

SERVICE BEHIND THE NUMBERS 

While the matter and contact data quantifies the 

volume and categories of inquiries the Ombudsman 

receives, the data does not capture the full value 

of the service the Ombudsman provides to the 

investing public. Among the most common 

situations in which investors bring particular 

concerns, problems, and fears to the Ombudsman 

are those in which the investors are unfamiliar 

with the existing channels established to resolve 

the particular concerns they raise, unsure which 

resolution channel to use or how to initiate the 

process, and unable to get the specific outcome they 

want through the resolution channels available 

based on their particular facts. In these situations, 

investors generally assume their preferred outcome 

is a viable option and expect that the Ombudsman 

is permitted to do whatever is necessary to reach 

that outcome.

Typically, investors who are unfamiliar with or 

unsure of the available resolution channels 

will thoughtfully consider the advantages and 

disadvantages of the resolution options the 

Ombudsman presents, and establish their expectations based upon the potential outcome each 

option offers. For these investors, the Ombudsman 

serves a valuable resource function, but the 

investor retains responsibility for choosing how to 

proceed based on the resources the Ombudsman 

presents. Investors who believe they are entitled 

to a particular result and want the Ombudsman 

to provide it can be challenging to assist. At times, 

they resist the Ombudsman’s efforts to engage in a 

productive dialogue and conclude that any outcome 

other than the particular outcome they want is 

untenable and unacceptable. 

The vignettes that follow are provided to give a 

sense of the variety of issues we address. Together, 

they offer a closer look at the how the Ombudsman 

staff’s time, effort, and commitment provide 

meaningful, personalized service to investors, and 

illustrate the value of the day-to-day work more 

effectively than the data alone.
22 | OFFICE OF THE INVESTOR ADVOCATE

The Ombudsman was contacted to assist senior staff in the SEC’s Office of International Affairs with an inquiry 

from an investor entitled to receive funds obtained in an SEC enforcement action against a fraudster who preyed 

on financially unsophisticated investors. The Ombudsman recognized the elderly investor needed to act quickly 

to remain eligible for participation in the court-ordered plan for disbursement of disgorged assets. The Ombudsman 

staff spoke with the investor directly, clarified and explained aspects of the distribution plan, and provided guidance for reaching the distribution agent and appropriate Division of Enforcement staff in the necessary time 

frame so that the investor would remain eligible to receive distributed funds.

A retired financial professional read an article discussing the Investor Advocate’s focus on making financial 

disclosure more useful to the average investor. Inspired by the article, the investor suggested ordinary investors 

could understand and use financial information more effectively by showing corporate earnings and liabilities in 

relation to the price of a single share—in his opinion, a reference point easily understood by retail investors. Given 

this investor’s goal—making corporate disclosures more useful to retail investors—the Ombudsman encouraged 

him to share his suggestions directly with the Division of Corporation Finance Office of Rulemaking staff through 

the comment process for the SEC’s disclosure effectiveness initiative to ensure that his feedback was received 

and reviewed by staff in the appropriate rulemaking division. 

An elderly investor who normally relied upon family members to assist him with electronic communications 

and web forms was frustrated that a hard copy SEC complaint form he requested had not arrived by mail. He 

also wanted information on other non-electronic means for filing complaints. The Ombudsman staff explained 

the various complaint and resolution options available. In passing, the investor mentioned his son was coming 

to his home that evening to print a document for him. Noting that, the Ombudsman staff also provided the web 

address for the complaint form so that his son could print a copy or assist the investor with completing the 

electronic form. The Ombudsman staff also ensured that the appropriate SEC office sent the investor the hard 

copy form and followed up with the investor directly.

An investor encountered difficulty retrieving public company information using the SEC’s web-based EDGAR 

system. The investor subsequently requested the same information by letter addressed to an SEC regional office. He called the office to check on the status of his request, and felt that the tone and substance of the staff 

person’s response were unhelpful. He then contacted the Ombudsman demanding an apology, the name of 

the regional office director, and a more user-friendly electronic search function for the EDGAR database. After 

respectfully acknowledging the investor’s frustrations and effectively diffusing the situation, the Ombudsman 

resolved his substantive concerns on the spot by patiently providing a step-by-step phone tutorial of the EDGAR 

search process.

A senior investor complained that, for years, the SEC failed to respond adequately to his complaints alleging 

market manipulation by unidentified, publicly-held companies. In response to an Ombudsman staff request for 

clarification, the investor declared that the staff tried to stop the Ombudsman from helping him by intercepting 

his communications. Once the Ombudsman personally reassured the investor that she received his communications and that the request for clarification was genuine, he asked the Ombudsman to revisit all of his prior SEC 

complaints and compel the SEC to recover his investment losses. The staff explained that the Ombudsman 

cannot change the outcome of formal investigations. In reply, the investor alleged an SEC-wide conspiracy to 

prevent the Ombudsman from resolving his complaint satisfactorily. 
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 23

Ultimately, our interactions with investors and 

their responses to us—both positive and negative—

provide insight into the information investors rely 

upon and the assistance they want when making 

financial decisions. As indicated above, when this 

insight highlights a lack of information or gaps in 

understanding, we attempt to provide personalized, 

straightforward service to investors by liaising with 

the appropriate persons and entities, by providing 

the information necessary to help investors better 

understand the solutions the SEC can provide, and 

by empowering and equipping investors to make 

well-informed investment decisions.

Streamlined Communications with Investors

During the Reporting Period, the Ombudsman 

continued to work extensively with the SEC’s 

Office of Information Technology (OIT) and 

a technology contractor to refine data and 

functionality requirements for the Ombudsman 

Matter Management System (OMMS), an electronic platform for tracking, analyzing and 

reporting matter and contact information 

while ensuring all necessary data management, 

confidentiality, and reporting requirements are 

met. Notably, the manual recordkeeping systems 

used in prior fiscal years were phased out during the 

Reporting Period and migrated over to OMMS. 

The OMMS Form, a web-based form permitting 

the submission of electronic inquiries, complaints, 

and documents directly to the Ombudsman, was 

made available to the public in September 2017 

via the www.sec.gov/ombudsman webpage. The 

OMMS Form guides the user through a series of 

questions specifically tailored to elicit information 

concerning matters within the scope of the 

Ombudsman’s function. In addition, the OMMS 

Form allows users to electronically upload and 

submit related documents for staff review. The 

OMMS Form is instructive and user-friendly, and is 

also compatible for use on mobile devices. 

The OMMS Form should encourage more retail 

investors and interested persons to contact the 

Ombudsman. Persons who choose to contact the 

Ombudsman via the OMMS Form will encounter 

user-friendly features such as radio buttons, dropdown menu responses, pop-up explanation bubbles, 

webpage links, and fillable narrative text fields. 

The OMMS Form also incorporates response 

recognition functionality that pre-populates specific 

fields and prompts the user to provide additional 

information as necessary. Any persons who do not 

wish, or are unable, to use the OMMS Form, may 

still contact the Ombudsman by email, telephone, 

fax, and mail.

Making the OMMS Form available to the public 

in September 2017 completed the transition from 

a manual intake, tracking, and reporting process 

to a fully functional, customized, electronic matter 

management platform. Over the next several 

months, as more persons use the OMMS Form, 

we will closely monitor questions and suggestions 

relating to the OMMS Form and will continue to 

work with OIT and the technology contractor to 

further refine the OMMS Form and improve the 

user experience. 
24 | OFFICE OF THE INVESTOR ADVOCATE

STANDARDS OF PRACTICE

Any retail investor with an issue or concern related 

to the SEC or an SRO subject to SEC oversight 

may contact the Ombudsman. The Ombudsman 

is available to identify existing SEC options and 

resources to address issues or concerns, and to 

explore informal, objective steps to address issues 

or concerns that may fall outside of the agency’s 

existing inquiry and complaint processes. Similar 

to ombudsmen at other federal agencies, the 

Ombudsman follows three core standards of 

practice:

Confidentiality Impartiality Independence

The Ombudsman has established 

safeguards to protect confidentiality, 

including the use of OMMS, a separate 

email address, dedicated telephone and 

fax lines, and secure file storage. The 

Ombudsman generally treats matters 

as confidential, and takes reasonable 

steps to maintain the confidentiality of 

communications. The Ombudsman also 

attempts to address matters without 

sharing information outside of the 

Ombudsman staff, unless given permission 

to do so. However, the Ombudsman may 

need to contact other SEC divisions or 

offices, SROs, entities, and/or individuals 

and share information without permission 

under certain circumstances including, but 

not limited to: a threat of imminent risk or 

serious harm; assertions, complaints, or 

information relating to violations of the 

securities laws; allegations of government 

fraud, waste, or abuse; or if otherwise 

required by law.

The Ombudsman does 

not represent or act as an 

advocate for any individual 

or entity, and does not 

take sides on any issues 

brought to her attention. The 

Ombudsman maintains a 

neutral position, considers the 

interests and concerns of all 

involved parties, and works 

to resolve questions and 

complaints by clarifying issues 

and procedures, facilitating 

discussions, and identifying 

options and resources.

By statute, the Ombudsman 

reports directly to the Investor 

Advocate, who reports 

directly to the Chairman of 

the SEC. However, the Office 

of the Investor Advocate 

and the Ombudsman are 

designed to remain somewhat 

independent from the 

rest of the SEC. Through 

the Congressional reports 

filed every six months by 

the Investor Advocate, the 

Ombudsman reports directly 

to Congress without any 

prior review or comment 

by the Commission or other 

Commission staff.

The Ombudsman’s Challenge

The SEC’s mission is to “protect investors, 

maintain fair, orderly, and efficient markets, and 

facilitate capital formation.”124 At the center of 

many complaints the Ombudsman receives is a 

misunderstanding about the SEC’s relationship 

and obligations to individual investors because of 

the “protect investors” language in the mission 

statement. In these situations, investors frequently 

assume the purpose of SEC investigations and 

enforcement actions is to protect investors by getting 

their money back. While the SEC’s enforcement 

actions may at times align with the personal 

interests of harmed investors, the SEC does not 

pursue investigations and enforcement actions solely 

to represent an investor’s particular legal interest or 

to recover money a particular investor may have 

lost. Rather, the SEC is tasked with enforcing the 

federal securities laws to serve the broad interests of 

the investing public by maintaining fair, orderly, and 

efficient capital markets.

A primary question we encounter is, then, what can 

the Ombudsman do for investors who have been 

harmed by violations of the federal securities laws? 

In appropriate circumstances, the Ombudsman 

may be able to present options to investors or 

foster communications between the investor and 
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 25

SEC divisions or offices or SROs. However, the 

Ombudsman is not authorized to do many things 

that investors request, including:

§	deciding the facts in a dispute that the investor 

has with the Commission or an SRO, or in a 

dispute before an SRO, such as an arbitration 

or mediation;

§	intervening on behalf of, or representing the 

interest of, an investor in a formal dispute or 

investigation process;

§	providing advice on how the federal securities 

laws may impact their particular investments or 

legal options; or

§	changing formal outcomes, including decisions 

about whether to investigate an allegation of 

wrongdoing, settle an enforcement action, or 

create a Fair Fund.

With these limitations in mind, the Ombudsman 

routinely explains to investors that they have the 

ability to protect their interests and preserve their 

legal rights in ways that the Ombudsman cannot. 

For example, an investor can file an arbitration 

or mediation complaint with FINRA to address 

a broker dispute, or hire private legal counsel to 

advise the investor on the best ways to protect the 

investor’s rights or reach a particular outcome. 

Investors who do not have the means to hire 

legal counsel may want to request representation 

through no-cost legal clinics sponsored by various 

law schools. 

While the Ombudsman staff cannot represent the 

interests of investors in private disputes, we do 

serve these investors by providing information that 

will assist them in making choices for themselves. 

The policy topics and updates that follow include 

information and context that retail investors 

may find instructive and helpful when making 

investment decisions, or when considering alternatives if they wish to file formal complaints 

or seek legal representation.

PROBLEM AREAS FOR RETAIL 

INVESTORS

Fiduciary Standard

As the Investor Advocate discussed in the Report 

on Objectives for FY 2016 and the Report on 

Objectives for FY 2018, there are different 

standards of care for financial professionals who 

give advice to investors.125 Specifically, brokers are 

subject to a suitability standard while investment 

advisers are held to a fiduciary standard. Under the 

suitability standard, when a broker recommends 

that a client buy or sell a security, the broker 

must have a reasonable basis to believe that the 

recommendation is suitable for the client.126 In 

comparison, the fiduciary standard imposes a duty 

to serve the best interests of the client, as well as 

a duty of loyalty and a duty of care. This means 

that if the adviser has a material conflict of interest 

with a client, the adviser must either eliminate that 

conflict or fully disclose all material facts to the 

client relating to the conflict.127

Although these standards sound similar to 

each other, they are very different. Imagine two 

investment products that are similar to each other 

with similar performance exclusive of fees, but the 

sale of one product compensates a broker more 

than the sale of the other product. If both products 

are suitable to the client’s investment plan, under 

the suitability standard, the broker does not have to 

disclose to the client that the broker has an incentive 

to sell the higher fee product or alert the client to 

the higher costs associated with that investment. 

In comparison, under the fiduciary standard, an 

investment adviser faced with the same choice of 

investments must always act in the best interest of 

the client. This means that if the adviser believed the 

investment that provided the greatest remuneration 

to the adviser was the better option for a client, 

the adviser must fully disclose the adviser’s 

conflict of interest to the client when making the 

recommendation.
26 | OFFICE OF THE INVESTOR ADVOCATE

As noted in the Report on Objectives for FY 2018, 

the U.S. Department of Labor adopted a regulation 

that would apply the fiduciary standard to any 

person who, for compensation, provides investment 

advice or recommendations to retirement plans 

(DOL Fiduciary Rule).128 In response to calls for 

the SEC to engage in a similar rulemaking, SEC 

Chairman Jay Clayton requested public comments 

from retail investors and other interested parties on 

standards of conduct for investment advisers and 

broker-dealers.129 As of the end of FY 2017, the 

SEC received more than 140 comments on this issue 

from retail investors, financial institutions, trade 

associations, and other interested parties.130

Why is this important to retail investors? From 

January to August 2017, breach of fiduciary duty 

was the number one area of controversy in investor 

arbitrations.131 In addition, the DOL Fiduciary Rule 

and the SEC’s application of a fiduciary standard 

to broker-dealers may have a significant impact on 

retail investors, entities regulated by the SEC, and 

our capital markets.132

The Ombudsman encourages retail investors to 

learn more about fiduciary duties and why this is a 

strongly debated topic. If you desire, you also may 

express your thoughts about the issue by going to 

www.sec.gov/cgi-bin/ruling-comments. 

SEC Oversight of FINRA

In the Report on Objectives for FY 2018, we discussed the issue of what the Ombudsman may do 

for investors who have been harmed by violations 

of the federal securities laws. We noted that investor 

communications to the Ombudsman often reflect 

a confusion about the roles played by, and the 

authority provided to, the SEC, the staff of the SEC, 

and the Ombudsman in promoting the mission of 

investor protection. In line with this discussion, 

we will address another area of SEC regulatory 

authority that may confuse some investors: the 

SEC’s authority over FINRA.

To retail investors, FINRA is perhaps the most 

well-known SRO133 supervised by the SEC because 

FINRA operates BrokerCheck134 and its dispute 

resolution forum,135 both of which are commonly 

used by retail investors. For retail investors seeking 

to understand the scope of the SEC’s authority 

over FINRA, a good place to start is the Securities 

Exchange Act of 1934 (Exchange Act). With the 

Exchange Act, Congress created the SEC and 

provided the agency with broad authority over all 

aspects of the securities industry. This includes the 

power to register, regulate, and oversee brokerage 

firms, transfer agents, clearing agencies, and SROs 

like FINRA.136

There are several sections of the Exchange Act that 

govern SROs generally and FINRA in particular. 

Good places to learn about FINRA’s requirements 

are Sections 15A and 19 of the Exchange Act. 

Section 15A(b)(6) contains the bedrock principle 

that FINRA must issue rules that are “designed 

to prevent fraudulent and manipulative acts and 

practices, to promote just and equitable principles 

of trade . . . and, in general, to protect investors and 

the public interest.”137 This requirement is used by 

the SEC to assess whether a proposed FINRA rule 

conforms with the Exchange Act. In comparison, 

Section 19 specifies the procedures that FINRA and 

the SEC must follow when FINRA seeks to propose 

a new rule or modify an existing rule. For example, 

FINRA must file the rule and a concise statement 

of the purpose of the rule, which are followed by 

several actions the SEC must take: it must alert 

the public of FINRA’s proposed rule; it must allow 

the public to comment on the proposed rule; and 

it must approve the rule before the rule can take 

effect. To approve the rule, the SEC conducts its 

review for consistency with Section 15A(b)(6), as 

discussed above.

The SEC’s supervision and authority over FINRA 

includes:

§	FINRA must keep its registration statement 

up-to-date pursuant to SEC reporting 

requirements;138
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 27

§	The SEC’s Office of the Compliance Inspections 

and Examinations conducts routine and 

for-cause inspections of FINRA;139

§	The SEC approves or disapproves proposed 

FINRA rule changes;140

§	The SEC can abrogate, add to, or delete 

FINRA rules through rulemaking;141

§	The SEC can affirm, remand, or revise a FINRA 

sanction against a broker or brokerage firm;142

§	The SEC can sanction FINRA for failing, 

without reasonable justification, to enforce the 

Exchange Act or FINRA rules, and sanction 

FINRA officers or directors for willful violations 

of the Exchange Act;143

§	The SEC can force structural and governance 

changes through enforcement proceedings;144 and

§	The SEC can revoke FINRA’s registration as a 

securities association under the Exchange Act.145

However, the SEC conducts little or no oversight 

over FINRA in several key ways:

§	FINRA can set its own rulemaking and 

disciplinary agendas without SEC input, 

including deciding which rulemaking comments 

influence its rules;146

§	The SEC does not review FINRA’s governance, 

executive compensation, or cooperation with 

state securities regulators;147 and

§	The SEC cannot attend arbitration hearings, 

advocate on behalf of a party to an arbitration 

hearing, or dispute an award granted by 

arbitrators in a hearing.

The Ombudsman encourages investors to 

familiarize themselves with the SEC and FINRA’s 

responsibilities pursuant to these provisions. 

Investors should feel free to contact the 

Ombudsman if they have questions or require 

additional information.

Gaps in BrokerCheck

As discussed in the Report on Activities for FY 

2016, the Ombudsman has a strong interest in the 

information contained in the Central Registration 

Depository (CRD), especially because the 

information is valuable to regulators, firms, and 

investors.148 Similarly, FINRA has stated that it has 

an interest in “protecting the integrity of the CRD 

system and the information contained in it.”149

FINRA’s BrokerCheck is a publicly available tool 

that investors can use to assess the credibility and 

trustworthiness of brokers, investment advisers, and 

financial services firms.150 As explained by FINRA, 

BrokerCheck provides three benefits to retail 

investors:151

§	BrokerCheck helps you make informed choices 

about brokers and brokerage firms and provides 

easy access to investment adviser information. 

§	BrokerCheck tells you instantly whether a 

person or firm is registered, as required by law, 

to sell securities (stocks, bonds, mutual funds 

and more), offer investment advice or both. 

§	BrokerCheck gives you a snapshot of a broker’s 

employment history, licensing information and 

regulatory actions, arbitrations, and complaints.

On March 21, 2017, an article in The Wall Street 

Journal (WSJ) noted that BrokerCheck reports 

arbitration decisions that go against a firm, but 

not legal settlements that the firm negotiated with 

its customers; in contrast, BrokerCheck reports 

for individual brokers show both.152 The reason 

for this gap in BrokerCheck reporting is due to 

the drafting of FINRA Rule 8312, which specifies 

what information is reported (and omitted) in 

BrokerCheck reports. Specifically, the data reported 

by BrokerCheck comes from five forms provided 

to FINRA by financial services firms: Form U4, 

Form U5, Form U6, Form BD, and Form BDW.153

Whenever a broker is subject to a settlement with a 

customer exceeding $15,000, the firm reports this 

to FINRA on a Form U4.154 This information, in 

turn, is reported on BrokerCheck. However, when 

a firm is subject to a settlement with a customer 

exceeding $25,000, this information is reported to 

FINRA,155 but it is not reported on a Form BD or 

any other form identified in Rule 8312. As a result, 
28 | OFFICE OF THE INVESTOR ADVOCATE

investors seeking to conduct due diligence on a firm 

through BrokerCheck will not get a full picture of 

the firm’s disputes with its customers. The only way 

that an investor can piece this information together 

is to search for all current and former brokers at a 

firm during the relevant time period, identify all of 

the settlements involving those brokers while those 

brokers were at that firm, and add those settlements 

up. This may be an unrealistic demand to place 

upon on investors. One investor rights advocate 

interviewed by the WSJ opined that this gap needs 

to be filled, and an academic that specializes in 

securities arbitration commented that she was 

“pretty shocked” at finding out that this gap 

exists.156 The Ombudsman agrees with both of 

these sentiments.

On September 29, 2017, FINRA announced that it 

will propose an amendment to Rule 8312.157 The 

amendment would: (1) provide investment adviser 

information in BrokerCheck for brokers who are 

also registered investment advisers; (2) permit 

“limited data sets” of BrokerCheck information to 

be publicly available; (3) exclude information from 

BrokerCheck regarding deceased brokers who have 

been unregistered with FINRA since 1999; and (4) 

allow firms to include in BrokerCheck a comment 

about arbitration awards pertaining to the firm.158

The Ombudsman applauds FINRA’s efforts 

to amend BrokerCheck disclosures. Including 

information from the Investment Adviser Public 

Disclosure (IAPD) in BrokerCheck will enable 

retail investors to better assess a firm or broker’s 

trustworthiness from a single source. Permitting 

expanded availability of BrokerCheck information 

is a step that is long overdue, and FINRA is 

commended for expanding the dissemination of 

BrokerCheck data.

However, the proposed amendment to Rule 

8312 falls far short of its potential. FINRA 

should consider taking this opportunity to close 

the informational gap that currently exists and 

prevents customers from discovering information 

about settlements with brokerage firms. FINRA 

Rule 8312(b)(2)(C) states that information to be 

released via BrokerCheck includes “summary 

information about certain arbitration awards 

against a BrokerCheck Firm involving securities or 

commodities dispute with a public customer.” This 

language could be amended slightly to “summary 

information about certain arbitration awards and 

settlements against a BrokerCheck Firm involving 

a securities or commodities dispute with a public 

customer.” In the proposed rule and accompanying 

Regulatory Notice, FINRA could explain that 

information that must be reported to FINRA 

pursuant to Rule 4530(a)(1)(G)—settlements 

with customers for amounts exceeding $25,000 

against a member firm—will now be reported on 

BrokerCheck. 

What does this mean for retail investors? As the 

Ombudsman discussed in the Report on Activities 

for FY 2016, retail investors should be wary of 

brokers and advisers with misconduct on their 

records, or who work for firms with significant 

numbers of employees with misconduct on their 

records.159 Suggested steps that investors can take 

to learn more about brokers or firms include the 

following:

§	Reviewing both BrokerCheck and IAPD for 

disclosure events, employment history, and other 

potential red flags before deciding whether to 

invest; and 

§	Contacting their state securities regulator for 

information related to a specific broker, adviser, 

firm, or branch office of a firm.160

Since there is a known gap in CRD/BrokerCheck 

reporting of settlements against broker-dealer firms 

of $25,000 or less, retail investors should take 

caution before investing with a firm if the investor 

is aware of brokers at the firm who have settlement 

disclosure events on their BrokerCheck reports, 

but the firm’s BrokerCheck report is missing this 

detail.161 This is especially true given that FINRA 

arbitrators award expungement in roughly nine 
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 29

out of every ten cases,162 meaning that when a 

broker seeks expungement of a disclosure event, 

it is removed from BrokerCheck forever.

FINRA Dispute Resolution

As discussed in prior reports, the Ombudsman 

regularly monitors FINRA’s activities, especially 

FINRA’s dispute resolution forum, because of its 

direct impact on retail investors. In the period 

since the Report on Objectives for FY 2018, the 

FINRA Board has authorized FINRA to propose 

amendments to FINRA’s Membership Application 

Program relating to broker misconduct, a topic 

that the Ombudsman discussed in the Report on 

Objectives for FY 2016. In addition, updates on 

expungement and explained decisions, which are 

topics that we have also discussed in past reports, 

are included below.163

Broker Misconduct

FINRA has provided an outline of some of the 

steps the Board has authorized to address broker 

misconduct and the impacts on the firms that hire 

these brokers,164 but the full scope of FINRA’s 

response to this issue is still unfolding. On June 12, 

2017, Robert Cook, President and CEO of FINRA, 

gave a speech entitled “Protecting Investors from 

Bad Actors,” and in that speech stated that the 

Board authorized the following actions:

[A] proposed rule amendment to require 

brokerage firms to adopt heightened 

supervisory procedures for individuals while 

a disciplinary case is pending appeal. We also 

intend to reinforce and clarify firms’ existing 

supervisory obligations concerning brokers 

they employ that have disciplinary histories. 

Among other measures, the proposals would 

also expand sanction guidelines to enable 

adjudicators to consider more severe sanctions 

when an individual’s disciplinary history 

includes additional types of past misconduct. 

They also would allow hearing panels, in 

appropriate circumstances, to restrict the 

activities of firms and individuals while a 

disciplinary matter is on appeal.165

In addition, the FINRA Board authorized FINRA 

to amend its rules to require a firm to seek a 

materiality consultation with FINRA if a broker 

with “certain specified risk events” seeks to become 

an owner, control person or principal of the firm, 

or if the firm seeks to hire a broker with “certain 

specified risk events” on the broker’s record.166 If 

these conditions are met, the firm would not be 

eligible for the safe harbor for business expansions. 

As amendments to FINRA’s membership program, 

these proposed changes potentially place greater 

scrutiny and restrictions on firms that hire brokers 

with misconduct on their records, and on the 

brokers themselves. These are positive steps, but 

we encourage FINRA to examine and answer calls 

for reform to FINRA’s expungement process, which 

permanently removes data from CRD/BrokerCheck, 

and take other steps that may provide more 

meaningful investor protection.

Expungement

As an issue that we discussed in the Reports on 

Objectives for FY 2017 and FY 2016, expungement 

of arbitration claims from CRD/BrokerCheck is 

a topic that the Ombudsman monitors because it 

presents a risk to investor protection. In July 2017, 

a trade publication for the brokerage industry 

reported that the year-to-date decisions of standalone expungement cases were up 226 percent 

from the same time period in 2016.167 As opposed 

to expungements sought at the same time a case 

is arbitrated or settled, stand-alone expungements 

are filed separately from the original complaints, 

often long after the incident has been reported in 

CRD/BrokerCheck.168 The author interviewed 

several attorneys involved in arbitration matters 

who hypothesized reasons why this trend may be 

occurring, including:

§	FINRA is marketing BrokerCheck more which, 

in turn, is making investors more savvy;

§	FINRA’s relatively new requirement that firms 

provide a link to BrokerCheck with any online 

broker profile;
30 | OFFICE OF THE INVESTOR ADVOCATE

§	Fee-based accounts must have a BrokerCheck 

report included with the account paperwork;

§	Before 2010, complaints would be displayed 

for only two years, but now they stay on 

BrokerCheck forever;

§	The “accumulation of meritless complaints” 

experienced by brokers; and

§	Word “has gotten out that expungements are 

not hard to get,” with a win rate of 90 percent, 

despite an allegedly narrow standard that should 

preclude such a high win rate.169

In addition, the article notes that in most cases, 

neither firms nor investors object to expungement 

requests.170 This is not surprising, as investors 

and firms have little incentive to devote time 

and resources to oppose an expungement in a 

matter that was resolved in the past. FINRA 

also does not challenge expungement requests 

in its dispute resolution forum—even those that 

it may object to—and states are precluded from 

doing so. As a result, there are no voices arguing 

against expungement, including in cases in which 

expungement is not appropriate. In our view, this 

undermines the very purpose of BrokerCheck, 

which is to give information to investors about past 

complaints and disciplinary matters so they can 

make fully informed decisions about who to entrust 

with their retirement savings and other assets.

On September 25, 2017, FINRA responded to the 

stand-alone expungement statistics by updating 

its Expanded Expungement Guidance web page 

for arbitrators and arbitration parties.171 On this 

web page, FINRA informs arbitrators about the 

importance of alerting investors regarding the 

expungement request.172 This is good information; 

however, FINRA should consider taking a closer 

look as to why expungement-only cases have 

blossomed in the last year. FINRA also may 

wish to inform its arbitrators that stand-alone 

expungements are on the rise and that the Rule 

2080 factors must be present for expungement to 

be granted. Finally, if FINRA finds that arbitrators 

are inappropriately granting expungement, it may 

wish to consider providing more effective arbitrator 

education on expungement or taking appropriate 

actions against arbitrators who do not follow 

FINRA’s standards and rules. 

Explained Decisions

As we discussed in the Report on Objectives for 

FY 2018, FINRA disregarded the FINRA Dispute 

Resolution Task Force’s recommendations and did 

not offer a default explained decision.173 Instead, 

FINRA requires an arbitration panel to include an 

explanation with its award only after the disputing 

parties opt-in and make a joint request for an 

explained decision. According to law professor Jill 

Gross, getting the parties to agree to an explained 

decision has been nearly impossible, with perhaps 

fewer than ten joint requests since FINRA implemented its current rule in 2009.174 Ironically, in its 

response to comments on its current rule, which has 

proven effective at quashing explained decisions, 

FINRA asserted that the rule would “increase 

investor confidence in the fairness of the arbitration 

process.”175 Retail investor comments to the 

Ombudsman suggest otherwise.

Although some observers are concerned that 

explained decisions would result in increased 

motions to vacate, FINRA has clarified a maxim of 

its arbitrations: they are final, binding, and awards 

are rarely vacated.176 In June 2017, one arbitrator in 

a three-person arbitration panel wrote an explained 

decision in Tullis v. Ameriprise Fin. Serv. with the 

intent to challenge this maxim.177 Specifically, the 

explained decision was not requested by the parties, 

the arbitrator was not compensated for writing the 

explanation, the other two arbitrators did not join 

the decision, and most notably, the arbitrator wrote 
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 31

the explanation because he hoped the case would 

establish precedent.178 He states:

While the parties did not request a reasoned 

decision, this Arbitrator considers that most 

decisions deserve to be explained in order to 

create a body of precedent unavailable now 

that most courts no longer have jurisdiction 

over most securities litigation. Hopefully, 

this decision may help contribute to that 

body of law.

The issue he sought to clarify was the duty of care 

that the broker owed to his clients. Specifically, the 

broker, who had a misleading “financial advisor” 

title, was subject to a fiduciary standard under 

state law, rather than the suitability standard 

generally applied to brokers, because the broker 

exercised discretion when he invested in specific 

securities without getting advance approval from his 

clients.179 Moreover, the clients “never understood 

the consequences of this strategy [in particular, the 

potential adverse impact of financial leverage on 

their investment returns] and why it didn’t serve 

their best interests.”180

Professor Jill Gross opined that she has “no doubt 

that the law regarding broker-dealers’ obligations 

to customers is widely misunderstood because of 

the dearth of precedent in an industry where predispute arbitration clauses are omnipresent.”181

In response to Professor Gross’ blog post, Phil 

Cottone, a member of the FINRA Dispute 

Resolution Task Force, stated that in his view 

and that of the Mediation Subcommittee of the 

Task Force that he chaired, “the increased use 

of explained awards would do much to increase 

transparency in the FINRA dispute resolution 

process.”182 The Ombudsman agrees with both 

of these views. So long as FINRA refuses to 

permit investors to unilaterally seek an explained 

decision183 or at least require a party to opt-out of a 

default explained decision, there will continue to be 

virtually no decisions rendered and, consequently, 

less transparency in FINRA’s dispute resolution 

process. There will also be less guidance to investors 

and their advocates in understanding the issues that 

arbitrators consider salient in cases.

OUTREACH ACTIVITIES

During the Reporting Period, the Ombudsman 

continued to seek out opportunities to increase 

awareness and elevate the visibility of the service we 

provide to retail investors. These activities included 

participation in the following ombudsman and 

securities industry events, professional conferences, 

and outreach efforts:

§	Coalition of Federal Ombudsmen 

Annual Conference;

§	American Bar Association Section of Dispute 

Resolution—Ombuds Subcommittee; 

§	International Ombudsman Association 

Annual Conference; 

§	Securities Arbitration Clinics’ 2017 Roundtable;

§	Panelist, “Maintaining a Commitment to Public 

Service throughout Your Career,” Fordham 

University School of Law;

§	Panelist, “Changing the View from the Top,” 

Bloomberg L.P. and the Women’s Community 

at Bloomberg;

§	Northeast Ombudsmen Quarterly Meeting;

§	Luncheon keynote speaker, 40th Annual 

Southwest Securities Conference;

§	Featured speaker, Yale Law School Chirelstein 

Colloquium on Contemporary Issues in Law 

and Business;

§	Corporate Counsel Women of Color Annual 

Conference; and 

§	In-person visits with twelve of the existing 

sixteen U.S. law school securities arbitration 

and investor advocacy clinics.
32 | OFFICE OF THE INVESTOR ADVOCATE

Law School Clinic Outreach Program

As of the end of FY 2017, sixteen law schools 

across the country run securities arbitration 

and investor advocacy clinics that provide legal 

representation to retail investors who are unable to 

hire legal counsel to handle their claims.184 Many 

of these clinics also conduct outreach to inform 

their local communities about financial products, 

saving and investing wisely, and avoiding scams—

particularly those aimed at specific communities 

such as immigrants, veterans, and senior investors. 

During the Reporting Period, the Ombudsman, 

working directly with the Investor Advocate and 

other staff, continued to develop an outreach 

program to law schools with investor protection, 

securities law, and investor-focused clinics 

(collectively, the Clinics). As discussed in the 

Ombudsman’s Report in the Report on Objectives 

for FY 2018, the Law School Clinic Outreach 

Program (LSCOP or the Program) is designed 

to align with our Office’s statutory mandate and 

core functions, and to benefit law student clinic 

participants and the investing public.185 The 

Program offers clinic professors and students the 

opportunity to hear directly from and work with 

Office staff through on-site visits and collaborative 

policy assignments and discussions, and creates 

an additional path for retail investors and law 

students to provide the Ombudsman and the 

Investor Advocate with direct feedback and 

formal comments on SEC rulemakings and policy. 

Currently, eight clinics are located in New York 

State, two are in California, and the District of 

Columbia, Georgia, Illinois, Florida, New Jersey 

and Pennsylvania each have one clinic.186

During the first quarter of FY 2017, the 

Ombudsman introduced the pilot phase of the 

Program, where the Ombudsman and a senior 

counsel made in-person visits to two participating 

law school clinics and spent time with the clinic 

faculty and students in the classroom setting.187

The purpose of these visits was to exchange ideas, 

engage in meaningful policy discussions, and receive 

feedback and recommendations on policies and 

issues directly impacting retail investors. Following 

the classroom discussions, one clinic submitted a 

detailed letter outlining potential ways the Office 

and the clinic could work together on policy matters 

moving forward, identifying problematic products 

and practices facing their client base, and providing 

suggestions for how the Office and the Commission 

may better advocate for retail investors. Thereafter, 

in lieu of a visit to the SEC, the Office arranged a 

virtual conference with one clinic, during which our 

Office engaged in an in-depth, interactive discussion 

with the clinic faculty and students. 

By the second half of FY 2017, the Ombudsman 

concluded the pilot phase of the outreach 

program and began a broad roll-out of LSCOP 

to all existing clinics.188 The Ombudsman and a 

senior counsel had the privilege of attending the 

Securities Arbitration Clinics’ 2017 Roundtable 

held at Fordham University School of Law in New 

York (Roundtable).189 At the Roundtable, we had 

the opportunity to meet and engage with clinic 

directors from at least six different law schools. The 

Ombudsman and senior counsel used this unique 

opportunity to introduce the Program and engage 

with clinic faculty generally about problematic 

products and practices affecting retail investors. 

Shortly after the Roundtable, the Ombudsman and 

Office staff conducted on-site visits to each law 

school clinic. To date, we have visited twelve of the 

existing sixteen Clinics.190 These in-person meetings 

provided the Ombudsman and a senior counsel the 

opportunity to inform clinic directors, and in some 

instances clinic students, of the work of our Office, 

hear more about each clinic’s work, and to solicit 

perspectives and policy feedback on retail investor 

concerns. During many of the in-person meetings, 

clinic directors were excited to share with us the value 

of services rendered and notable settlements reached 

on behalf of their clients.191 The in-person meetings 

also provided an opportunity for our Office and the 

clinic directors to discuss LSCOP and how the clinic 

and the Office may work together moving forward. 
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 33

Throughout the fourth quarter of FY 2017, the 

Office further built upon the success of the pilot 

phase by working directly with clinic faculty at 

each law school to develop an individualized 

framework focused on fostering a collaborative 

and mutually beneficial relationship. For example, 

one law school expressed an interest in engaging 

in a long-term policy focused project. To facilitate 

this, the Office identified three policy issues from 

its FY 2018 policy agenda192 for the clinic to 

consider as an area of focus. The clinic was also 

free to consider and select an area not identified by 

the Office but deemed important to their clients. 

Other clinics analyzed their cases and identified for 

the Office potentially problematic products and 

practices that affected their clients throughout the 

Reporting Period.193

Through the in-person meetings, the Office also 

gained a better understanding of the retail investor 

populations the Clinics serve, the obstacles the 

Clinics face, and the impressive work the Clinics 

do advocating for retail investors despite these 

obstacles. Clinic clients typically have “small” 

claims—losses at or below $100,000.194 However, 

each clinic’s criteria for who they will represent 

is typically published on a clinic’s website.195 The 

clinic’s eligibility guidelines are designed “to offer 

free legal services to clients who have suffered 

losses from disputed transactions that have had 

a significant impact on their financial condition 

and cannot afford or do not have access to private 

representation,” or who are unable to obtain 

representation due to the size of their claim.196

Client eligibility is also driven, in part, by local court 

rules, student practice rules, and ethical rules.197

As a result of these rules, clients may need to be 

residents of the state in which the clinic operates, 

which limits a clinic’s ability to assist clients outside 

of its jurisdiction.198 These rules effectively create 

representational gaps, particularly in middle America 

where no clinics are located.199

As another aspect of client eligibility, clinics may 

also give preference to senior citizens.200 For 

example, the Pittsburgh region is considered to 

have one of the highest aging populations in the 

country and, as a result, has many senior citizen 

clients.201 Senior citizens and retirees, however, are 

not a clinic’s only clients. Clinic clients also include 

regular, middle-class Americans such as hairdressers, 

mail carriers, welders, schoolteachers, librarians, 

first-time investors, and millennials.202

Because of the populations clinics serve, clinics 

may be among the first to identify trends impacting 

retail investors with small claims.203 Clinic directors 

were eager to share some of the trends they have 

identified in their cases, which include: unregistered 

investment advisers, suitability, churning, REITs, 

option straddles, variable annuities, private 

placements, junk bonds and online mobile trading 

applications.204 Clinic directors also welcomed the 

opportunity to share some of the difficulties they 

encounter in running a securities arbitration clinic. 

In addition to the challenges posed by state practice 
34 | OFFICE OF THE INVESTOR ADVOCATE

rules, the most common challenge identified is 

maintaining ongoing funding.205 Historically, many 

securities arbitration clinics began with, or at some 

time received, financial support from the FINRA 

Investor Education Foundation or state securities 

regulators.206 However, in recent years, external 

funding has dwindled, and clinics are forced to rely 

on endowments or funding from their respective 

law schools.207 A clinic closing due to lack of 

funding creates new challenges for the remaining 

clinics and leaves investors with fewer places to turn 

for assistance.208 For example, one clinic’s waitlist 

is so long they are unable to add any new clients or 

take any new cases.209

The conversations with clinic directors and students 

during the Reporting Period also highlighted 

the varied and impressive work of each clinic. 

Specifically, the Ombudsman and a senior counsel 

learned more about the unique way in which each 

clinic approaches investor advocacy and outreach. 

For example, clinics may choose to write formal 

comment letters on pending policy and regulatory 

issues,210 or write and publish scholarly articles 

related to securities arbitration.211 Other clinics may 

focus their efforts on investor outreach by hosting 

in-person information sessions at local libraries, 

senior centers, or high schools.212 Some clinics 

utilize technology and maintain investor education 

blogs or create educational videos describing key 

investor concepts.213 Clinic outreach efforts are also 

developed to engage a wide range of vulnerable 

groups including members of the military, seniors, 

young professionals, and faith communities.214 In 

short, clinics provide unique and innovative ways to 

reach and educate retail investors and fill a gap by 

representing underserved populations. 

As previously noted, one of the goals of LSCOP 

is to create the opportunity for clinic students 

and faculty to provide the Investor Advocate and 

Ombudsman with their perspectives, including ideas 

and suggestions on how our Office and the SEC 

may better advocate for and assist retail investors. 

During the meetings, clinics consistently identified 

the SEC website, www.sec.gov, as an area ripe 

for improvement. Specifically, clinics highlighted 

navigation, searchability, and the order in which the 

SEC web page populates in web search engines such 

as Bing and Google as problematic for some retail 

investors.215 Improving these aspects of the SEC 

website would make it more user-friendly and better 

able to disseminate important information available 

on the website, particularly to retail investors who 

may be at an informational disadvantage.216 In the 

spring of 2017, the Commission introduced a new, 

revamped www.sec.gov. The Ombudsman will 

continue to monitor Commission improvements to 

the SEC website and welcome feedback from clinics 

on how to better improve the website. Additional 

clinic suggestions for improved advocacy included 

collaborative working sessions, conversations on 

policy initiatives, and Office observation of clinic 

outreach efforts. 

OUTLOOK FOR FISCAL YEAR 2018

During FY 2018, the availability of the OMMS 

Form will offer retail investors a streamlined 

process to submit their questions and complaints 

to the Ombudsman. The OMMS Form should 

assist and encourage retail investors to not only 

submit their questions and complaints, but also 

their ideas and suggestions on ways the agency 

may better meet their needs. The OMMS Form 

and related OMMS functionality should prove 

to be a highly effective method for fielding 

investor questions and complaints, reviewing 

related documents, and maintaining important 

information. In addition, the transition from 

manual recordkeeping systems to the OMMS 

platform will create significant efficiencies, which 

will allow the Ombudsman to better track and 
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 35

analyze matter and contact data while continuing 

to offer personalized, thoughtful service to 

retail investors. 

During FY 2018, we also look forward to hosting 

law school clinic faculty and students at SEC 

Headquarters in meetings with SEC Commissioners, 

senior officers, and a wider agency audience to 

discuss their efforts on behalf of retail investors and 

the potential impact of SEC policy considerations 

on their clients. The Ombudsman will also continue 

to make in-person visits to the law school clinics 

and engage with clinic faculty and students in the 

classroom setting and at select outreach events. As 

discussed above, many law school clinics conduct 

investor outreach programs, and the Ombudsman 

will seek opportunities to observe and support these 

programs throughout the upcoming fiscal year. 

The Ombudsman will also continue to facilitate 

conversations and working sessions with the clinics 

to further ground our Office to the voices and needs 

of retail investors. 

As in prior fiscal years, the Ombudsman will 

continue to reallocate staff resources and 

responsibilities as necessary to accommodate 

additional work volume and outreach efforts. 

These efforts include investor-focused speaking 

engagements, expanded use of social and traditional 

media to share information with the investing public 

and interested persons, and more involvement in 

ombudsmen and securities industry conferences 

and events. In addition, the Ombudsman will 

continue to examine the various ways the SEC 

communicates with retail investors and to identify 

areas for improvement. Through ongoing work 

with the law school clinics, and regular discussions 

with ombudsmen and colleagues across the federal 

government, the Ombudsman hopes to generate 

innovative and impactful ways to communicate the 

work of the agency to retail investors. This is an 

ongoing issue of importance to the Ombudsman 

because it directly affects the agency’s ability to 

understand and respond to the needs and concerns 

of retail investors. Improved communications will 

enable us to give retail investors information about 

how the SEC protects investors in a meaningful 

and understandable way, and will encourage retail 

investors to provide us with feedback on how we 

can fulfill our mission to protect investors even 

better. I look forward to providing updates on our 

progress in these areas in our next report. 

Tracey L. McNeil

Ombudsman

REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 37

SUMMARY OF IAC 

RECOMMENDATIONS AND 

SEC RESPONSES

Congress established the Investor Advisory 

Committee to advise and consult with 

the Commission on regulatory priorities, 

initiatives to protect investor interests, initiatives to 

promote investor confidence and the integrity of 

the securities marketplace, and other issues.217 The 

Committee is composed of the Investor Advocate, 

a representative of state securities commissions, 

a representative of the interests of senior citizens, 

and not fewer than 10 or more than 20 members 

appointed by the Commission to represent 

the interests of various types of individual and 

institutional investors.218

Exchange Act Section 39 authorizes the Committee 

to submit findings and recommendations for 

review and consideration by the Commission.219

The statute also requires the SEC “promptly” to 

issue a public statement assessing each finding or 

recommendation of the Committee and disclosing 

the action, if any, the Commission intends to take 

with respect to the finding or recommendation.220

While the Commission must respond to the IAC’s 

recommendations, it is under no obligation to agree 

with or act upon the recommendations.221 In each 

of its reports to Congress, including this one, the 

Office of the Investor Advocate summarizes the 

IAC recommendations and the SEC’s responses 

to them.222

In the past, the Commission has taken action that 

was responsive to the IAC’s recommendations 

related to crowdfunding,223 a shortened trade 

settlement cycle,224 and a tick size pilot program.225

This report covers all other recommendations 

the IAC has made since its inception. For more 

detailed summaries, please see our earlier reports 

to Congress.

The Commission may be pursuing initiatives that 

are responsive to IAC recommendations but have 

not yet been made public. Commission staff—

including the staff of this Office—are prohibited 

from disclosing nonpublic information.226

Therefore, any such initiatives are not reflected in 

this Report.
38 | OFFICE OF THE INVESTOR ADVOCATE

Topic Date IAC Recommendation SEC Response

Enhance Information for 

Bond Market Investors227

June 7, 2016 Provide post-trade price 

transparency, including 

markups or markdowns, 

in municipal, corporate 

and agency bonds and, 

over the longer term, 

provide pre-trade price 

transparency as well.

On November 17, 2016, the SEC 

approved rules requiring disclosure 

of mark-ups and markdowns on 

most municipal and corporate 

bond transactions, calculated 

from the bond’s prevailing market 

price.228 FINRA and MSRB have 

announced that the new disclosure 

requirements will become effective 

on May 14, 2018.229 On November 

9, 2017, the SEC announced the 

formation and first members of 

its Fixed Income Market Structure 

Advisory Committee.230

Mutual Fund Cost 

Disclosure231

April 14, 2016 Enhance investors’ 

understanding of mutual 

fund costs and the impact 

of those costs on total 

accumulations over time. 

Provide standardized 

disclosure of actual dollar 

costs on customer account 

statements.

Commission staff has begun 

investor testing to explore ways 

to improve mutual fund cost 

disclosures.

Empowering Elders 

and Other Investors: 

Background Checks232 

July 16, 2015 Develop a disciplinary 

database to allow easy 

searches to determine 

whether a person or firm 

has been sanctioned for 

securities law violations. 

Reduce the complexity of 

background searches.

In June 2017, in his first public 

appearance before the IAC, 

Chairman Clayton announced 

efforts were underway to simplify 

and enhance the tools that the SEC 

makes available to help investors 

conduct background searches on 

their investment professionals.233

Accredited Investor 

Definition234

Oct. 9, 2014 Consider enabling 

individuals to qualify 

as accredited investors 

based on their financial 

sophistication.

On December 18, 2015, the SEC 

issued a staff report that discussed, 

among other alternatives, using 

sophistication as an element of the 

accredited investor definition.235

Impartiality in the 

Disclosure of Preliminary 

Voting Results236

Oct. 9, 2014 Ensure impartiality in the 

disclosure of preliminary 

voting results.

No response.
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 39

Topic Date IAC Recommendation SEC Response

Legislation to Fund 

Investment Adviser 

Examinations237

Nov. 22, 2013 Ask Congress to authorize 

user fees on SECregistered investment 

advisers to provide 

a scalable source of 

funding for more frequent 

compliance examinations 

of advisers.

Though it has not requested 

authorization for user fees, the 

SEC for several years has made 

a priority of expanding coverage 

of investment adviser exams. 

In 2016, the SEC reassigned 

approximately 100 OCIE staff 

to the investment adviser 

examination unit.238 The SEC’s 

FY 2018 Budget Request projects 

an increase of an estimated 100 

additional Investment Adviser 

Examinations compared to the 

previous FY.239

Broker-Dealer 

Fiduciary Duty240 

Nov. 22, 2013 Establish a fiduciary duty 

for broker-dealers when 

they provide personalized 

investment advice to retail 

investors.

On June 1, 2017, Chairman Clayton 

issued a statement seeking public 

input on standards of conduct for 

investment advisers and brokerdealers.241 In October 2017, he 

testified to Congress that the 

Commission had been reviewing 

the topic, and he stated his goal 

to “properly tailor an approach or 

package of approaches that we 

believe will best address the 

issues identified.”242 

Universal Proxy Ballots243 July 25, 2013 Allow universal ballots in 

connection with short slate 

director nominations.

On October 26, 2016, the SEC 

proposed amendments to the 

proxy rules to require parties in a 

contested election to use universal 

proxy cards that would include 

the names of all board of director 

nominees. The comment period 

closed on January 9, 2017.244 

Data Tagging245 July 25, 2013 Promote the use of 

machine-readable data 

tagging formats for data 

filed with the SEC.

The SEC addresses data tagging, 

as appropriate, in its rulemaking. 

The latest example appears in 

the FAST Act Modernization 

and Simplification of Regulation 

S-K, proposed on Oct. 11, 2017.246

Another rule proposed earlier in 

the year would require the filing 

of financial statement data using 

Inline XBRL.247
40 | OFFICE OF THE INVESTOR ADVOCATE

Topic Date IAC Recommendation SEC Response

Target Date 

Mutual Funds248

April 11, 2013 Revise an SEC proposed 

rule on target date 

retirement fund names and 

marketing, and develop 

a glide path illustration 

based on a measure of 

fund risk.

On April 3, 2014, the Commission 

reopened the comment period 

on the proposed rule in order to 

seek public comment on the IAC’s 

recommendations to adopt a riskbased glide path illustration and 

the methodology to be used for 

measuring risk.249 The comment 

period closed on June 9, 2014.

General Solicitation and 

Advertising250

Oct. 12, 2012 Strengthen investor 

protections and enhance 

regulators’ ability to police 

the private placement 

market.

The SEC adopted final general 

solicitation and advertising rules on 

July 10, 2013, and also proposed a 

related rule to enhance its ability to 

monitor the market following lifting 

of the ban.251 That proposal, which 

is still pending, relates to most of 

the IAC recommendations.
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 41

END NOTES

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 See SEC, Office of the Investor Advocate, Report on 

Objectives, Fiscal Year 2017 (June 30, 2016) [hereinafter 

Report on Objectives, Fiscal Year 2017], https://www.sec.

gov/advocate/reportspubs/annual-reports/sec-office-investoradvocate-report-on-objectives-fy2017.pdf. 

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

Objectives, Fiscal Year 2018 (June 29, 2017) [hereinafter 

Report on Objectives, Fiscal Year 2018], https://www.sec.

gov/advocate/reportspubs/annual-reports/sec-office-investoradvocate-report-on-objectives-fy2018.pdf. 

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

6 Id.

7 Report on Objectives, Fiscal Year 2017, supra note 3. 

8 The Office of the Investor Advocate was established 

pursuant to Section 915 of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act of 2010 (DoddFrank Act). On February 24, 2014, SEC Chair Mary Jo 

White appointed Rick A. Fleming as the Commission’s first 

Investor Advocate.

9 Fixing America’s Surface Transportation Act, Pub. L. 

No. 114-94, § 72003, 129 Stat. 1312 (2015).

10 Report on Modernization and Simplification of Regulation 

S-K (Nov. 23, 2016) [hereinafter FAST Act Report], 

available at https://www.sec.gov/reportspubs/sec-fastact-report-2016.pdf. On October 11, 2017, after the 

Reporting Period, the Commission proposed rule and 

form amendments implementing the Fast Act Report’s 

recommendations. See FAST Act Modernization and 

Simplification of Regulation S-K, Securities Act Release 

No. 10425, 82 Fed. Reg. 50,988 (Nov. 2, 2017). 

11 See Inline XBRL Filing of Tagged Data, Securities Act Release 

No. 10323, 82 Fed. Reg. 14,282 (Mar. 17, 2017).

12 See Exhibit Hyperlinks and HTML Format, Securities Act 

Release No. 10322, 82 Fed. Reg. 14,130 (Mar. 17, 2017).

13 See Request for Comment on Possible Changes to 

Industry Guide 3 (Statistical Disclosure by Bank Holding 

Companies), Securities Act Release No. 10321, 82 Fed. 

Reg. 12,757 (Mar. 7, 2017).

14 See Interactive Data to Improve Financial Reporting, 

Securities Act Release No. 9002, 74 Fed. Reg. 6,776 

(Feb. 10, 2009).

15 See Rick A. Fleming, Investor Advocate, SEC, Remarks 

Before XBRL US Investor Forum 2016: Finding Value 

with Smart Data: Improving Disclosure with Smart 

Data (Oct. 24, 2016), https://www.sec.gov/news/speech/

improving-disclosure-with-smart-data.html.

16 See FAST Act Report, supra note 10, at 21.

17 See Scott M. Straub & Matt Rumsey, Data Foundation, 

Who Is Who and What Is What: The Need for Universal 

Entity Identification in the United States (published Sept. 

2017), available at http://www.datafoundation.org/leireport-2017/.

18 See Rick A. Fleming, Investor Advocate, SEC, Remarks 

Before the NASAA Corporation Finance Training: Moving 

Forward with the Commission’s Disclosure Effectiveness 

Initiative (Nov. 19, 2016), https://www.sec.gov/news/

speech/moving-forward-with-the-disclosure-effectivenessinitiative.html.

19 See Rick A. Fleming, Investor Advocate, SEC, Remarks 

Before PLI’s SEC Speaks in 2017: Improving Investor 

Engagement (Feb. 24, 2017), https://www.sec.gov/news/

speech/fleming-improving-investor-engagement.html.

20 See Rick A. Fleming, Investor Advocate, SEC, Remarks 

Before the NASAA 2017 Public Policy Conference: 

Enhancing the Demand for IPOs (May 9, 2017), 

https://www.sec.gov/news/speech/fleming-enhancingdemand-ipos-050917. 

21 See Regulation of NMS Stock Alternative Trading Systems, 

Exchange Act Release No. 76474, 80 Fed. Reg. 80,997, 

81,001 (proposed Dec. 28, 2015).

22 See Comment Letter, Rick A. Fleming, Investor Advocate, 

SEC, RE: File No. S7-23-15, Regulation of NMS Stock 

Alternative Trading Systems (Sept. 9, 2016), https://

www.sec.gov/about/offices/investorad/investor-advocatecomment-letter-regulation-ats.pdf [hereinafter Fleming, 

Letter on Regulation of NMS Stock ATS]. 

23 See id.

24 Regulation NMS, Exchange Act Release No. 51808, 70 

Fed. Reg. 37,495 (adopted June 29, 2005). 

25 See Disclosure of Order Handling Information, Exchange 

Act Release No. 78309, 81 Fed. Reg. 49,431 (proposed 

July 27, 2016). 

26 See id.

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

28 See Financial Industry Regulatory Authority, Inc.; Notice 

of Filing and Immediate Effectiveness of a Proposed Rule 

Change To Provide a Process for an Expedited Proceeding 

and Adopt a Rule To Prohibit Disruptive Quoting and 

Trading Activity, Exchange Act Release No. 76361, 81 Fed. 

Reg. 85,650 (published Nov. 24, 2015).

29 See Comment Letter, Rick A. Fleming, Investor Advocate, 

SEC, RE: File No. SR-BATS-2015-101, (Dec. 15, 2015), 

https://www.sec.gov/about/offices/investorad/commentletter-bats-investor-advocate-121515.pdf.

30 See Bats EDGA Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of a Proposed Rule Change 

Related To Amend Its Fee Schedule To Replace Current 

Inverted Pricing Model With Low Fee Model, Exchange 

Act Release No. 80976, 82 Fed. Reg. 28,920 (published 

June 26, 2017).
42 | OFFICE OF THE INVESTOR ADVOCATE

31 See NYSE MKT LLC; Notice of Filing and Immediate 

Effectiveness of Proposed Change To Adopt Transaction 

Fees in Connection With the Exchange’s Transition to a 

Fully-Automated Cash Equities Market, Exchange Act 

Release No. 81228, 82 Fed. Reg. 36,012 (published 

Aug. 2, 2017).

32 See Joint Industry Plan; Order Approving the National 

Market System Plan Governing the Consolidated Audit 

Trail, Exchange Act Release No. 79318 (Nov. 15, 2016), 

https://www.sec.gov/rules/sro/nms/2016/34-79318.pdf.

33 See Self-Regulatory Organizations; NYSE MKT LLC; 

Order Approving Proposed Rule Change Amending 

Rules 7.29E and 1.1E To Provide for a Delay Mechanism, 

Exchange Act Release No. 80700, 82 Fed. Reg. 23,381 

(published May 22, 2017).

34 See Self-Regulatory Organizations; The NASDAQ Stock 

Market LLC; Order Approving a Proposed Rule Change, as 

Modified by Amendment No. 1, To Adopt a New Extended 

Life Priority Order Attribute Under Rule 4703, and To 

Make Related Changes to Rules 4702, 4752, 4753, 4754, 

and 4757, Exchange Act Release No. 81097, 82 Fed. Reg. 

32,386 (published July 13, 2017).

35 See Joint Industry Plans; Order Approving the National 

Market System Plan to Implement a Tick Size Pilot Program 

by BATS Exchange, Inc., BATS Y-Exchange, Inc., Chicago 

Stock Exchange, Inc., EDGA Exchange, Inc., EDGX 

Exchange, Inc., Financial Industry Regulatory Authority, 

Inc., NASDAQ OMX BX, Inc., NASDAQ OMX PHLX 

LLC, The Nasdaq Stock Market LLC, New York Stock 

Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc., 

as Modified by the Commission, for a Two-Year Period, 

Exchange Act Release No. 74892, 80 Fed. Reg. 27,513 

(published May 13, 2015).

36 See Exemption Under Rule 608(e) of Regulation NMS 

from a Certain Provision of the Plan to Implement a Tick 

Size Pilot Program (Sep. 13, 2016), https://www.sec.gov/

divisions/marketreg/mr-noaction/2016/exemption-608etick-size-pilot-091316.pdf. 

37 See SEC, Press Release, SEC Announces Members of New 

Equity Market Structure Advisory Committee, 2015-5 (Jan. 

13, 2015), http://www.sec.gov/news/pressrelease/2015-5.

html; see also Equity Market Structure Advisory Committee 

website, available at https://www.sec.gov/spotlight/equitymarket-structure-advisory-committee.shtml (last visited 

Oct. 1, 2016).

38 See SEC, EMSAC, Recommendation for an Access Fee 

Pilot (July 8, 2016), https://www.sec.gov/spotlight/emsac/

recommendation-access-fee-pilot.pdf. 

39 The Office of the Investor Advocate considers a proposed 

rule or rule amendment with comment periods expiring 

between October 1, 2016 and September 30, 2017, to be 

included in its FY 2017 rulemaking review. In FY 2017, 

twenty-four proposed rule or rule amendments have been 

closed and one proposal remains open, action pending. 

40 See FINRA, Regulatory Notice 17-24, Pricing Disclosure 

in the Fixed Income Markets (July 2017), http://www.

finra.org/sites/default/files/notice_doc_file_ref/RegulatoryNotice-17-24.pdf; MSRB, Regulatory Notice 2017-12, 

MSRB Provides Implementation Guidance on Confirmation 

Disclosure and Prevailing Market Price (July 12, 2017), 

http://www.msrb.org/~/media/Files/Regulatory-Notices/

Announcements/2017-12.ashx?n=1; FINRA, Regulatory 

Notice 17-24, Pricing Disclosure in the Fixed Income 

Markets (July 2017), http://www.finra.org/sites/default/files/

notice_doc_file_ref/Regulatory-Notice-17-24.pdf. 

41 On November 14, 2014, FINRA and the MSRB released 

for comment two related proposals in FINRA Regulatory 

Notice 14-52 and MSRB Regulatory Notice 2014-20. The 

MSRB proposed requiring dealers to disclose the “price to 

the dealer in a ‘reference transaction’ and the differential 

between the price to the customer and the price to the 

dealer for same-day, retail-size principal transactions” 

in customer confirmations. Similarly, FINRA proposed 

requiring disclosure “where a firm executes a sell (buy) 

transaction of ‘qualifying size’ with a customer and 

executes a buy (sell) transaction as principal with one or 

multiple parties in the same security within the same trading 

day, where the size of the customer transactions would 

otherwise be satisfied by the size of one or more same-day 

principal transaction(s).” MSRB, Regulatory Notice 2014-

20, Request for Comment on Draft Rule Amendments to 

Require Dealers to Provide Pricing Reference Information 

on Retail Customer Confirmations, at 1 (Nov. 17, 2014), 

http://www.msrb.org/~/media/Files/Regulatory-Notices/

RFCs/2014-20.ashx?n=1; FINRA, Regulatory Notice 

14-52, Pricing Disclosure in the Fixed Income Markets, at 

3 (Nov. 17, 2014), http://www.finra.org/sites/default/files/

notice_doc_file_ref/Notice_Regulatory_14-52.pdf. 

42 For a summary of our comment letters, see SEC, Office 

of the Investor Advocate, Report on Activities, Fiscal Year 

2016 (Dec. 21, 2016), https://www.sec.gov/advocate/

reportspubs/annual-reports/sec-investor-advocate-report-onactivities-2016.pdf. 

43 See Comment Letter, Rick A. Fleming, Investor Advocate, 

SEC, RE: MSRB Notice 2015-16, RE: FINRA Notice 

15-36 (Dec. 11, 2015), https://www.sec.gov/about/

offices/investorad/comment-letter-msrb-finra-investoradvocate-121115.pdf [hereinafter Comment Letter, 

MSRB Notice 2015-16].

44 Comment Letter, Rick A. Fleming, Investor Advocate, SEC, 

RE: Recommendation of the Investor Advocate, File Nos. 

SR-FINRA-2016-032; SR-MSRB-2016-12 at Appendix 

A, p. 9-10 (Nov. 7, 2016), https://www.sec.gov/comments/

sr-finra-2016-032/finra2016032-10.pdf [hereinafter 

Recommendation of the Investor Advocate]. The proposed 

rule by FINRA also requires members to apply a look 

through where a member’s transaction with its affiliate is 

not at arm’s length. Id.

45 See Self-Regulatory Organizations; Financial Industry 

Regulatory Authority, Inc.; Notice of Filing of a Proposed 

Rule Change Relating to FINRA Rule 2232 (Customer 

Confirmations) to Require Members to Disclose Additional 

Pricing Information on Retail Customer Confirmations 

Relating to Transactions in Fixed Income Securities, 
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 43

Exchange Act Release No. 78573, 81 Fed. Reg. 55,500 

(Aug. 19, 2016), https://www.gpo.gov/fdsys/pkg/FR-2016-

08-19/pdf/2016-19773.pdf; Self-Regulatory Organizations; 

Municipal Securities Rulemaking Board; Notice of Filing of 

a Proposed Rule Change to MSRB Rules G-15 and G-30 

to Require Disclosure of Mark-Ups and Mark-Downs to 

Retail Customers on Certain Principal Transactions and to 

Provide Guidance on Prevailing Market Price, Exchange 

Act Release No. 78777, 81 Fed. Reg. 62,947 (Sept. 13, 

2016), https://www.gpo.gov/fdsys/pkg/FR-2016-09-13/

pdf/2016-21909.pdf.

46 See Self-Regulatory Organizations; Financial Industry 

Regulatory Authority, Inc.; Notice of Filing of Amendment 

No. 1 and Order Granting Accelerated Approval of a 

Proposed Rule Change, as Modified by Amendment No. 1, 

Relating to FINRA Rule 2232 (Customer Confirmations) 

to Require Members to Disclose Additional Pricing 

Information on Retail Customer Confirmations Relating to 

Transactions in Certain Fixed Income Securities, Exchange 

Act Release No 79346, 81 Fed. Reg. 84,637 (Nov. 23, 

2016) [hereinafter SRO: Notice of Filing of Amendment 

No. 1]; Self-Regulatory Organizations; Municipal Securities 

Rulemaking Board; Notice of Filing of Amendment No. 

1 and Order Granting Accelerated Approval of Proposed 

Rule Change, as Modified by Amendment No. 1, to MSRB 

Rules G-15 and G-30 to Require Disclosure of Mark-ups 

and Mark-Downs to Retail Customers on Certain Principal 

Transactions and to Provide Guidance on Prevailing 

Market Price, Exchange Act Release No. 79347, 81 Fed. 

Reg. 84,637 (Nov. 23, 2016). 

47 FINRA, Regulatory Notice 17-08, Pricing Disclosure in 

Fixed Income Markets (Feb. 2017), http://www.finra.

org/sites/default/files/notice_doc_file_ref/RegulatoryNotice-17-08.pdf; MSRB, Regulatory Notice 2016-28, 

New Disclosure Requirements Under MSRB Rule G-15 and 

Prevailing Market Price Guidance Pursuant to Rule G-30 

Effective May 14, 2018 (Nov. 29, 2016), http://msrb.org/~/

media/Files/Regulatory-Notices/Announcements/2016-28.

ashx?n=1. 

48 See FINRA, Regulatory Notice 17-24, Pricing Disclosure 

in the Fixed Income Markets (July 2017), http://

www.finra.org/sites/default/files/notice_doc_file_ref/

Regulatory-Notice-17-24.pdf; MSRB, Regulatory Notice 

2017-12, MSRB Provides Implementation Guidance on 

Confirmation Disclosure and Prevailing Market Price 

(July 12, 2017), http://www.msrb.org/~/media/Files/

Regulatory-Notices/Announcements/2017-12.ashx?n=1; 

see also FINRA, Fixed Income Confirmation Disclosure: 

Frequently Asked Questions (FAQ), http://www.finra.

org/industry/faq-fixed-income-confirmation-disclosurefrequently-asked-questions-faq. 

49 On April 7, 2016, the MSRB issued Regulatory Notice 

2016-13 proposing changes to MSRB Rule G-15(f) on 

minimum denominations. MSRB, Regulatory Notice 

2016-13, Request for Comment on Draft Amendments to 

MSRB Rule G-15(f) on Minimum Denominations (Apr. 

7, 2016), http://www.msrb.org/~/media/Files/RegulatoryNotices/RFCs/2016-13.ashx?n=1. On September 27, 2016, 

the MSRB published Regulatory Notice 2016-23, Second 

Request for Comment on Draft Provisions on Minimum 

Denominations. MSRB, Regulatory Notice 2016-23, 

Second Request for Comment on Draft Provisions on 

Minimum Denomination (Sept. 27, 2016), http://msrb.

org/~/media/Files/Regulatory-Notices/RFCs/2016-23.

ashx?la=en. On January 24, 2017, the MSRB filed with the 

Commission a proposed rule change to create MSRB Rule 

G-49, on Transactions Below the Minimum Denomination 

of an Issue. Proposed Rule Change to Add New MSRB 

Rule G-49 on Transactions Below the Minimum 

Denomination of an issue, to the Rules of the MSRB, and 

to Rescind Paragraph (f), on Minimum Denominations 

from MSRB Rule G-15, Exchange Act Release No. 79978, 

82 Fed. Reg. 10,143 (Feb. 9, 2017), https://www.gpo.gov/

fdsys/pkg/FR-2017-02-09/pdf/2017-02737.pdf. However, 

after considering the comments filed with the Commission, 

the MSRB Board of Directors determined that it is 

“desirable to obtain more information and, if possible, 

greater consensus, regarding any proposed amendments,” 

and the MSRB withdrew its Commission filing. MSRB, 

Press Release, Jennifer A Galloway, Chief Communications 

Officer, MSRB Holds Quarterly Board Meeting (May 

1, 2017), http://msrb.org/News-and-Events/PressReleases/2017/MSRB-Holds-Quarterly-Board-MeetingApril-2017.aspx; Notice of Withdrawal of a Proposed Rule 

Change to Add New MSRB Rule G-49, on Transactions 

Below Minimum Denomination of an Issue, to the Rules 

of the MSRB, and to Rescind Paragraph (f), on Minimum 

Denomination from MSRB Rule G-15, Exchange Act No. 

80610, 82 Fed. Reg. 22,044 (May 11, 2017), https://www.

gpo.gov/fdsys/pkg/FR-2017-05-11/pdf/2017-09526.pdf.

50 In March 2016, the MSRB sought comment on requiring 

municipal advisors to disclose the direct purchases and 

bank loans of their municipal entity clients or suggestions 

on other ways to make this information available. 

See MSRB, Regulatory Notice 2016-11, Request for 

Comment on a Concept Proposal to Improve Disclosure 

of Direct Purchases and Bank Loans (Mar. 28, 2016), 

http://www.msrb.org/~/media/Files/Regulatory-Notices/

RFCs/2016-11.ashx?n=1. However, in light of the 

comments received by the MSRB, the Board decided not 

to pursue rulemaking. MSRB, Press Release, Jennifer A. 

Galloway, Chief Communications Officer, MSRB holds 

Quarterly Board Meeting (Aug. 1, 2016), http://www.

msrb.org/News-and-Events/Press-Releases/2016/MSRBHolds-Quarterly-Board-Meeting-July-2016.aspx. On 

March 1, 2017, the Commission published for comment 

proposed amendments to Exchange Act Rule 15c2-12. 

The Commission’s proposed amendments would require 

a Participating Underwriter in an Offering to reasonably 

determine that an issuer or obligated person has undertaken 

a written agreement or contract to provide the MSRB 

notice of material financial obligations or events which 

reflect financial difficulties. SEC, Proposed Amendments 

to Exchange Act Rule 15c2-12, Exchange Act Release 

No. 80130, 82 Fed. Reg. 13,928, 13,937 (Mar. 15, 2017), 

https://www.gpo.gov/fdsys/pkg/FR-2017-03-15/pdf/2017-

04323.pdf. 
44 | OFFICE OF THE INVESTOR ADVOCATE

51 Proposed Amendments to Statement of Financial 

Accounting Concepts No. 8, Conceptual Framework for 

Financial Reporting, Chapter 3: Qualitative Characteristics 

of Useful Financial Information, FIN. ACCOUNTING 

STANDARDS BD., (Sept. 24, 2015), [hereinafter 

FASB, Proposed Amendments to Statement of Financial 

Accounting Concepts No. 8, Chapter 3] http://www.fasb.

org/jsp/FASB/Document_C/DocumentPage?cid=1176166

402450&acceptedDisclaimer=true; Proposed Accounting 

Standards Update, Notes to Financial Statements (Topic 

235): Assessing Whether Disclosures Are Material, FIN. 

ACCOUNTING STANDARDS BD. (Sept. 24, 2015), 

http://www.fasb.org/jsp/FASB/Document_C/Documen

tPage?cid=1176166402325&acceptedDisclaimer=true 

[hereinafter FASB, Proposed Accounting Standards Update, 

Notes to Financial Statements (Topic 235)]

52 FASB, Proposed Amendments to Statement of Financial 

Accounting Concepts No. 8, Chapter 3, supra note 51, at 

BC3.18B, 4. 

53 SEC, Investor Advisory Committee, Comment Letter 

on Proposed Amendments to Statement of Financial 

Accounting Concepts & Notes to Financial Statements 

(Jan. 21, 2016), http://www.fasb.org/cs/BlobServer?bl

obkey=id&blobnocache=true&blobwhere=11758327

25818&blobheader=application%2Fpdf&blobheade

rname2=Content-Length&blobheadername1=Content-Disposition&blobheadervalue2=661871&blob

headervalue1=filename%3DDISFR-C.ED.0051.SEC_

INVESTOR_ADVISORY_COMMITTEE.pdf&blobcol=

urldata&blobtable=MungoBlobs. The Investor Advocate 

is a member of the Investor Advisory Committee, but 

abstained on this vote.

54 Comment Letter, Rick A. Fleming, Investor Advocate, SEC, 

RE: File Reference No. 2015-300, Proposed Amendments 

by the Financial Accounting Standards Board (FASB) to 

Concepts Statement No. 8, Conceptual Framework for 

Financial Reporting, (July 11, 2017), http://www.fasb.org/

cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=

1175835179218&blobheader=application%2Fpdf&blobh

eadername2=Content-Length&blobheadername1=

Content-Disposition&blobheadervalue2=565918&blobhea

dervalue1=filename%3DDISFR-C.ED.0056.SEC_OFFICE_

INVESTOR_ADVOCATE_RICK_A._FLEMING.pdf&blo

bcol=urldata&blobtable=MungoBlobs.

55 Statement of Financial Accounting Concepts No. 2, 

Qualitative Characteristics of Accounting Information (As 

Issued), FIN. ACCOUNTING STANDARDS BD. 29 (May 

1980), http://www.fasb.org/jsp/FASB/Document_C/Docume

ntPage?cid=1218220132599&acceptedDisclaimer=true.

56 SEC Staff Accounting Bulletin No. 99, 64 Fed. Reg. 45,150 

(Aug. 12, 1999).

57 Comment Letter, Rick A. Fleming, Investor Advocate, 

SEC, RE: PCAOB Rulemaking Docket Matter No. 034, 

The Auditor’s Report on an Audit of Financial Statements 

When the Auditor Expresses an Unqualified Opinion, 

(Aug. 15, 2016), https://www.sec.gov/about/offices/

investorad/comment-investor-advocate-pcaob-auditorreports-8-15-2016.pdf [hereinafter Comment Letter, 

PCAOB Rulemaking Docket Matter No. 034].

58 The Auditor’s Report on an Audit of Financial Statements 

When the Auditor Expresses an Unqualified Opinion 

and Related Amendments to PCAOB Standards, PCAOB 

Release No. 2017-001 (June 1, 2017), https://pcaobus.org/

Rulemaking/Docket034/2017-001-auditors-report-finalrule.pdf. 

59 Public Company Accounting Oversight Board; Order 

Granting Approval of Proposed Rules on the Auditor’s 

Report on an Audit of Financial Statements When 

the Auditor Expresses and Unqualified Opinion, and 

Departures from Unqualified Opinions and Other 

Reporting Circumstances, and Related Amendments to 

Auditing Standards, Exchange Act Release No. 34-81916, 

82 Fed. Reg. 49,886 (Oct. 27, 2017). 

60 Comment Letter, PCAOB Rulemaking Docket Matter 

No. 034, supra note 57. 

61 Stephen Deane, Investor Engagement Advisor, Office of 

the Investor Advocate, SEC, The Rulemaking Process: 

Two Accounting and Auditing Mini-case Studies (Aug. 22, 

2017), https://www.sec.gov/news/speech/deane-speechrulemaking-process.

62 See Universal Proxy, Exchange Act Release No. 79164, 

81 Fed. Reg. 79,122 (published Nov. 10, 2016). 

63 See Investment Company Institute, 2017 Investment 

Company Fact Book 8 (57th ed., 2017), available at http://

www.icifactbook.org/deployedfiles/FactBook/Site%20

Properties/pdf/2017/2017_factbook.pdf. 

64 See id. at 6.

65 See id. at 30.

66 See id. at 26.

67 See id. at 58.

68 See id. at 100-106.

69 See, e.g., John Waggoner, Fidelity Investments Fires Another 

Salvo in the Fee Wars, Investment News (July 31, 2017, 2:44 

PM), http://www.investmentnews.com/article/20170731/

FREE/170739990/fidelity-investments-fires-another-salvoin-the-fee-wars (announcing Fidelity Investments’ fee cuts to 

fourteen of its stock and bond index funds); Emily Laermer, 

The Breakdown: Vanguard, BlackRock, Fido Lead Pack in 

Fund Fee Cuts, Ignites (May 31, 2017) (noting that mutual 

fund fees have “dipped at the largest fund complexes since 

2012”); Jackie Noblett, Low-Fee Rivals Schwab, Vanguard 

Trim Fund Fees, Ignites (May 30, 2017). But cf. Whitney 

Curry Wimbish, In Era of Falling Expense Ratios, Some 

Continue to Rise, Board iQ (July 12, 2016) (observing an 

increase in the expense ratios of several dozen equity funds 

that have suffered significant outflows).

70 See Morningstar Manager Research, Average Fund Feed 

Paid by Investors Continued to Decline in 2016 (May 23, 

2017), at 3.

71 Id.
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 45

72 Id. at 13.

73 Id. at 5.

74 Id. at 5.

75 Id. at 3.

76 See Wimbish, supra note 69 (observing an increase in the 

expense ratios of several dozen equity funds that have 

suffered significant outflows).

77 See SEC, Recommendation of the Investor Advisory 

Committee Regarding Mutual Fund Cost Disclosure

(Apr. 14, 2016), https://www.sec.gov/spotlight/investoradvisory-committee-2012/recommendation-mf-feedisclosure-041916.pdf.

78 See id.

79 See id.

80 See id.

81 See Transcript of Michael S. Piwowar, Comm’r, SEC, 

Remarks at the Investor Advisory Committee Meeting 

(Apr. 14, 2016), at 17; see also Beagan Wilcox Volz, 

SEC Investor Group Calls for Big-Fee Disclosure 

Changes, Ignites (April 18, 2016), http://ignites.com/

pc/1336673/152483.

82 Exchange Act § 4(g)(6)(B)(ii)(V), 15 U.S.C. § 78d(g)(6)(B)

(ii)(V).

83 SEC, Office of Compliance Inspections and Examinations, 

Examination Priorities for 2017 (Jan. 12, 2017), https://

www.sec.gov/about/offices/ocie/national-examinationprogram-priorities-2017.pdf. 

84 NASAA, NASAA 2016-2017 Year In Review, Serving & 

Protecting Investors (Sept. 2017), http://www.nasaa.org/

newsroom/nasaa-annual-report/ [hereinafter NASAA, 

Annual Report]. 

85 NASAA, NASAA Enforcement Report: 2017 Report Based 

on 2016 Data (Sept. 2017), http://nasaa.cdn.s3.amazonaws.

com/wp-content/uploads/2017/09/2017-EnforcementReport-Based-on-2016-Data.pdf [hereinafter NASAA 

Enforcement Report]. 

86 NASAA, Top Investor Threats, http://www.nasaa.org/3752/

top-investor-threats/ (last visited Oct. 3, 2017) [hereinafter 

NASAA, Top Investor Threats].

87 Letter from Lynnette Kelly, Exec. Dir., MSRB, to Rick 

A. Fleming, Investor Advocate, SEC, RE: Response to 

SEC Request Highlighting Municipal Market Practices

(Oct. 17, 2017) (on file with the Office of the Investor 

Advocate, SEC).

88 On September 7, 2017, our Office sent email 

correspondence to securities and investor advocacy law 

school clinics inviting their input on potentially problematic 

products and practices facing their clients during FY 2017.

89 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 Office of Compliance Inspections and 

Examinations during FY 2017. See SEC, Office of Investor 

Education and Advocacy, Investor Alerts and Bulletins, 

https://www.sec.gov/investor/alerts (last visited Sept. 30, 

2017); see also SEC, Office of Compliance Inspections and 

Examinations, Risk Alerts, https://www.sec.gov/ocie (last 

visited Sept. 30, 2017).

90 See NASAA, Investor Alerts & Tips, http://www.nasaa.org/

category/investor-education/investor-alerts-tips/ (last visited 

Sept. 18, 2017); see also NASAA, Annual Report, supra 

note 84; see also NASAA, Top Investor Threats, supra note 

86; see also NASAA Enforcement Report, supra note 85. 

91 This list of problematic products is based on the alerts 

and bulletins issued by FINRA for investors during 

FY 2017. 

92 Kelly, supra note 87.

93 This list of potentially problematic products and practices 

is based on discussions with law school clinic directors 

that we met with during FY 2017 as well as responses to 

OIAD’s September 7, 2017, email correspondence that was 

sent to securities and investor advocacy law school clinics 

inviting their input on potentially problematic products 

and practices facing their clients during FY 2017. See, 

e.g., Letter from Elizabeth Goldman, Clinical Professor of 

Law, Director, Securities Arbitration Clinic, Benjamin N. 

Cardozo School of Law, to Tracey McNeil, Ombudsman, 

SEC, Cardozo School of Law Securities Arbitration Clinic 

Report on Potentially Problematic Products or Practices 

Concerning Involving Registered Broker-Dealers and 

Unregistered Securities in the United States Securities 

Markets (Oct. 6, 2017) (on file with the Office of the 

Investor Advocate).

94 Typically, a municipal bond dealer places a retail client’s 

bid-wanted out to the market and compiles the bids 

received to determine the winning bid. In “pennying” or 

as it may also be called, “last-look,” the dealer, rather than 

execute a trade with the highest bidder, will nominally 

exceed the high bid to the client and buy the bond for the 

dealer’s own trading account. The MSRB has expressed 

concern that it can be harmful to investors over the longterm if the practice discourages broad market participation 

in the bidding process and renders the market less efficient. 

See Kelly, supra note 87.

95 Filtering (or screening) is the practice where a dealer may use 

automated tools available on an alternate trading system to 

screen out bids and offers received from certain dealers or 

where a selling dealer may direct a broker’s broker to limit 

the audience for a bid-wanted. According to the MSRB, 

policies and procedures should be in place to govern when 

and how to: reasonably use filters; periodically review any 

established filters; and consider lifting them upon request. 

See Kelly, supra note 87.

96 Report on Activities, Fiscal Year 2016, supra note 42, at 20. 

97 SEC, Office of the Investor Advocate, Report on Activities, 

Fiscal Year 2014 (Dec. 23, 2014), at 10, https://www.sec.

gov/advocate/reportspubs/sec-investor-advocate-report-onactivities-2014.pdf [hereinafter Report on Activities, Fiscal 

Year 2014]. 
46 | OFFICE OF THE INVESTOR ADVOCATE

98 Id. at 8.

99 SEC, Office of the Investor Advocate, Report on 

Activities, Fiscal Year 2015 (Dec. 23, 2015), at 16, 

https://www.sec.gov/advocate/reportspubs/annual-reports/

sec-investor-advocate-report-on-activities-2015.pdf. 

100 Report on Activities, Fiscal Year 2014, supra note 97, at 7.

101 SEC, “Investor Alert: Be Vigilant for Investment Scams 

Related to Hurricanes Harvey and Irma,” Sept. 6, 2017, 

https://www.sec.gov/oiea/investor-alerts-and-bulletins/ia_

harvey; FINRA, “FINRA Issues Alert Warning Investors of 

Stock Fraud Following Hurricane Harvey,” Aug. 31, 2017, 

http://www.finra.org/newsroom/2017/finra-issues-alertwarning-investors-stock-fraud-following-hurricane-harvey; 

NASAA, “NASAA Cautions Investors to Watch for Scams 

in Wake of Hurricane Harvey,” Aug. 30, 2017, http://www.

nasaa.org/43156/nasaa-cautions-investors-watch-scamswake-hurricane-harvey/.

102 See infra note 106.

103 MSRB, Rule G-15, Confirmation, Clearance, Settlement 

and Other Uniform Practice Requirements with Respect 

to Transactions with Customers, http://msrb.org/Rulesand-Interpretations/MSRB-Rules/General/Rule-G-15.

aspx. MSRB Rules regarding best execution, suitability, 

and trade disclosure are still applicable and supplement 

the protections afforded by MSRB Rule G-15 with respect 

to minimum denominations. MSRB, Regulatory Notice 

2016-13, Request for Comment on Draft Amendments to 

MSRB Rule G-15(f) on Minimum Denominations (Apr. 7, 

2016), at 5, http://www.msrb.org/~/media/Files/RegulatoryNotices/RFCs/2016-13.ashx?n=1. 

104 See, e.g., SEC, Press Release, SEC Sanctions 13 Firms for 

Improper Sales of Puerto Rico Junk Bonds, 2014-246 (Nov. 

3, 2014), https://www.sec.gov/news/press-release/2014-246. 

105 See MSRB, Regulatory Notice 2016-13, Request for 

Comment on Draft Amendments to MSRB Rule G-15(f) 

on Minimum Denominations (Apr. 7, 2016), at n.6, https://

www.sec.gov/rules/sro/msrb/2017/34-79978-ex2.pdf.

106 See MSRB, Regulatory Notice 2016-13, Request for 

Comment on Draft Amendments to MSRB Rule G-15(f) on 

Minimum Denominations (Apr. 7, 2016), at 6, http://www.

msrb.org/~/media/Files/Regulatory-Notices/RFCs/2016-13.

ashx?n=1.

107 See MSRB, Regulatory Notice 2016-13, Request for 

Comment on Draft Amendments to MSRB Rule G-15(f) 

on Minimum Denominations (Apr. 7, 2016), http://www.

msrb.org/~/media/Files/Regulatory-Notices/RFCs/2016-13.

ashx?n=1; MSRB, Regulatory Notice 2016-23, Second 

Request for Comment on Draft Provisions on Minimum 

Denomination (Sept. 27, 2016), http://msrb.org/~/media/

Files/Regulatory-Notices/RFCs/2016-23.ashx?la=en. 

108 Proposed Rule Change to Add New MSRB Rule G-49, on 

Transactions Below Minimum Denomination of an Issue, 

to the Rules of the MSRB, and to Rescind Paragraph (f), 

on Minimum Denominations, from MSRB Rule G-15, 

Exchange Act Release No. 79801, 82 Fed. Reg. 10,123 

(Feb. 9, 2017), https://www.gpo.gov/fdsys/pkg/FR-2017-02-

09/pdf/2017-02737.pdf.

109 MSRB, Press Release, Jennifer A Galloway, Chief 

Communications Officer, MSRB Holds Quarterly Board 

Meeting (May 1, 2017), http://msrb.org/News-and-Events/

Press-Releases/2017/MSRB-Holds-Quarterly-BoardMeeting-April-2017.aspx [hereinafter MSRB Press Release, 

May 2017 Quarterly Board Meeting]. 

110 Id.; Notice of Withdrawal of a Proposed Rule Change 

to Add New MSRB Rule G-49, on Transactions Below 

Minimum Denomination of an Issue, to the Rules of 

the MSRB, and to Rescind Paragraph (f), on Minimum 

Denomination from MSRB Rule G-15, Exchange Act No. 

80610, 82 Fed. Reg. 22,044 (May 11, 2017), https://www.

gpo.gov/fdsys/pkg/FR-2017-05-11/pdf/2017-09526.pdf. 

111 See generally Kelly, supra note 87; see also MSRB Press 

Release, May 2017 Quarterly Board Meeting, supra note 

109; Notice of Withdrawal of a Proposed Rule Change 

to Add New MSRB Rule G-49, on Transactions Below 

Minimum Denomination of an Issue, to the Rules of 

the MSRB, and to Rescind Paragraph (f), on Minimum 

Denomination from MSRB Rule G-15, Exchange Act No. 

80610, 82 Fed. Reg. 22,044 (May 11, 2017), https://www.

gpo.gov/fdsys/pkg/FR-2017-05-11/pdf/2017-09526.pdf. 

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

113 Exchange Act § 4(g)(7), 15 U.S.C. § 78d(g)(7).

114 Some of our comment letters respond to Concept Releases 

and set forth our views on certain matters, but a specific 

call for action may be premature. Comment letters of this 

nature are not included in this inventory. See, e.g., Rick A. 

Fleming, Investor Advocate, SEC, Comment Letter RE: 

Solicitation of Comments by the NASDAQ Listing and 

Hearing Review Council about Shareholder Approval 

Rules, (Feb. 12, 2016). Moreover, we are required to 

provide an inventory outlining actions of the SEC or SROs. 

Letters to Congress or other organizations such as NASAA 

are not included in this inventory, but are available at 

https://www.sec.gov/advocate/investor-advocate-commentletters.html. 

115 See Comment Letter, MSRB Notice 2015-16, supra note 43 

and accompanying text.

116 See Comment Letter, Rick A. Fleming, Investor Advocate, 

SEC, RE: Regulatory Notice 2016-07, Request for 

Comment on Draft Amendments to MSRB Rule G-30 

to Provide Guidance on Prevailing Market Price (Mar. 

31, 2016), https://www.sec.gov/about/offices/investorad/

comment-letter-investor-advocate-msrb-033116.pdf. 

117 See Comment Letter, PCAOB Rulemaking Docket Matter 

No. 034 supra note 57 and accompanying text.

118 See Fleming, Letter on Regulation of NMS Stock ATS, 

supra note 22 and accompanying text.

119 See Recommendation of the Investor Advocate, supra

note 44. 
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 47

120 Comment Letter, Rick A. Fleming, Investor Advocate, SEC, 

RE: File Reference No. 2015-300, Proposed Amendments 

by the Financial Accounting Standards Board (FASB) to 

Concepts Statement No. 8, Conceptual Framework for 

Financial Reporting, (July 11, 2017), http://www.fasb.org/

cs/BlobServer?blobkey=id&blobnocache=true&blobwhere

=1175835179218&blobheader=application%2Fpdf&blob

headername2=Content-Length&blobheadername1=

Content-Disposition&blobheadervalue2=565918&blobhea

dervalue1=filename%3DDISFR-C.ED.0056.SEC_OFFICE_

INVESTOR_ADVOCATE_RICK_A._FLEMING.

pdf&blobcol=urldata&blobtable=

MungoBlobs.

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

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

123 As used in this report, the term “Ombudsman” may refer 

to the Ombudsman, or to the Ombudsman and Office 

of the Investor Advocate staff and contractors directly 

supporting the ombudsman function.

124 What We Do, SEC (June 10, 2013), https://www.sec.gov/

Article/whatwedo.html.

125 SEC, Office of the Investor Advocate, Report on Objectives, 

Fiscal Year 2016 (June 30, 2015), https://www.sec.gov/

advocate/reportspubs/annual-reports/sec-office-investoradvocate-report-on-objectives-fy2016.pdf; Report on 

Objectives, Fiscal Year 2018, supra note 4.

126 Suitability, https://www.sec.gov/fast-answers/

answerssuitabilityhtm.html (last visited Oct. 16, 2017).

127 SEC, Study on Investment Advisers and BrokerDealers, at iii (Jan. 2011), https://www.sec.gov/news/

studies/2011/913studyfinal.pdf.

128 Report on Objectives, Fiscal Year 2018, supra note 4. 

129 Id.; see also Jay Clayton, Chairman, SEC, Public 

Comments from Retail Investors and Other Interested 

Parties on Standards of Conduct for Investment Advisers 

and Broker-Dealers (June 1, 2017) [hereinafter Request for 

Information], https://www.sec.gov/news/public-statement/

statement-chairman-clayton-2017-05-31.

130 See Public Comments from Retail Investors and Other 

Interested Parties on Standards of Conduct for Investment 

Advisers and Broker-Dealers, https://www.sec.gov/

comments/ia-bd-conduct-standards/iabdconductstandards.

htm (last visited Oct. 16, 2017).

131 Dispute Resolution Statistics, https://www.finra.org/

arbitration-and-mediation/dispute-resolution-statistics (last 

visited Oct. 16, 2017). As of October 16, 2017, there were 

1,268 breach of fiduciary duty cases in FINRA’s dispute 

resolution forum. The next highest controversy type is 

negligence, with 1,122 cases. Id.

132 Request for Information, supra note 129.

133 There is debate whether FINRA constitutes a selfregulatory organization. In 1996, the SEC censured the 

NASD due to the undue influence by NASDAQ market 

makers over NASD’s operations and regulatory affairs. 

As a consequence, the SEC required NASD to increase 

the role of public members on the NASD board among 

other remedies, which in turn changed the organization 

to one independent of its membership which, in the view 

of one critic, shifted the organization from an SRO to a 

regulator with industry representation. See, e.g., Hester 

Peirce, The Financial Industry Regulatory Authority: Not 

Self-Regulation after All 8-9, 18 (Mercatus Working Paper, 

Jan. 2015) [hereinafter Peirce Paper] https://www.mercatus.

org/system/files/Peirce-FINRA.pdf; see David R. Burton, 

Reforming FINRA, The Heritage Found. Backgrounder 

No. 3181, 2 (Feb. 1, 2017), http://www.heritage.org/sites/

default/files/2017-02/BG3181.pdf. 

134 BrokerCheck is a free tool that enables investors to research 

the professional backgrounds of brokers and brokerage 

firms. About BrokerCheck, http://www.finra.org/investors/

about-brokercheck (last visited Sept. 15, 2017).

135 When an investor opens an account at a brokerage firm, 

the agreement almost always includes a mandatory 

pre-dispute arbitration clause that specifies that any 

legal dispute between the investor and the broker will 

be resolved via FINRA dispute resolution. As a result, 

investors have become aware of FINRA’s arbitration and 

mediation forum.

136 The Laws That Govern the Securities Industry (Oct. 1, 

2013), https://www.sec.gov/answers/about-lawsshtml.

html#secexact1934.

137 Exchange Act § 15A(b)(6), 15 U.S.C. § 78o-3(b)(6).

138 Peirce Paper, supra note 133. 

139 Id. at 18.

140 Id. This is not a difficult standard for FINRA to meet. 

The proposed rule change must be consistent with Section 

15A(b)(6) of the Securities Exchange Act, which requires 

that FINRA rules be designed to prevent fraudulent and 

manipulative acts and practices, to promote just and 

equitable principles of trade, and, in general, to protect 

investors and the public interest. Unless a rule promotes 

fraud, manipulative acts or practices, inequitable principles 

of trade, or put investors at risk in a meaningful manner, 

it meets this standard. Hence, even objectionable rules or 

rule amendments may meet this standard if a justification 

could be made that it benefits investors. See, e.g., Comment 

Letter, Tracey L. McNeil, Ombudsman, and Rick A. 

Fleming, Investor Advocate, SEC, RE: File Nos. SRNYSEMKT-2016-52 and SR-NYSEArca-2016-103 (Oct. 

3, 2016), https://www.sec.gov/about/offices/investorad/

investor-advocate-comment-letter-sr-nysemkt-2016-52-sraysearca-2016-103.pdf.

141 Peirce Paper, supra note 133. 

142 Id. at 19.

143 Exchange Act § 19(h)(1), (h)(4), 15 U.S.C. § 78s(1), s(4).

144 Peirce Paper, supra note 133. 

145 Id. at 19.

146 See id.
48 | OFFICE OF THE INVESTOR ADVOCATE

147 U.S. Gov’t Accountability Office, GAO-12-625, 

Opportunities Exist to Improve SEC’s Oversight of the 

Financial Industry Regulatory Authority (2012).

148 Report on Activities, Fiscal Year 2016, supra note 42.

149 Royal Alliance Associates v. Liebhaber, 206 Cal. Rptr. 3d 

805 (Cal. Ct. App. 2016).

150 FINRA, BrokerCheck, supra note 134.

151 Id.

152 Heather Gillers, What You Won’t Learn From One Wall 

Street Watchdog Report, Wall St. J. (Mar. 21, 2017, 8:00 

AM) [hereinafter Gillers, What You Won’t Learn], https://

www.wsj.com/articles/what-you-wont-learn-from-one-wallstreet-watchdog-report-1490097600.

153 FINRA, Rule 8312(b)(2)(A) (2015). Forms U4 and BD 

report information about representatives and firms, 

respectively. Forms U5 and BDW report terminated 

registrations for representatives and firms, respectively. 

Form U6 is used by regulators.

154 The reporting requirement is found in FINRA, Rule 4530(a)

(1)(G) (2015), but the means to do so is the Form U4.

155 As was the case with representatives, the reporting 

requirement is provided in FINRA, Rule 4530(a)(1)(G).

156 Gillers, What You Won’t Learn, supra note 152 

(referencing Joe Borg, director of the Alabama Securities 

Commission and president-elect of NASAA, and Jill Gross, 

law professor at the Elisabeth Haub School of Law at Pace 

University).

157 Update: FINRA Board of Governors Meeting (Sept. 29, 

2017), http://www.finra.org/industry/update-finra-boardgovernors-meeting-092917.

158 Id.

159 Report on Activities, Fiscal Year 2016, supra note 42, at 41.

160 NASAA maintains a web page that lists the contact 

information for the securities regulators for each state in 

the United States. See Contact Your Regulator, http://www.

nasaa.org/about-us/contact-us/contact-your-regulator (last 

visited Oct. 16, 2017).

161 See Craig McCann et al., Puerto Rico Securities Arbitration 

Report: 2,079 Arbitration Filings, $304 million in 

Settlements and Awards so far, Sec. Litig. & Consulting 

Group 6 (Aug. 11, 2017), http://www.slcg.com/pdf/

workingpapers/PRSecuritiesArbitrationReport.pdf (this 

report is periodically updated; the cited report is on file with 

the Ombudsman).

162 PIABA Report: Data Show That FINRA Efforts to Slow 

Expungement of Broker Misconduct has Failed, PIABA 

(Oct. 20, 2015), https://piaba.org/system/files/pdfs/

PIABA%20Press%20Release,%20Expungement%20

Study%20Update.pdf.

163 We discussed expungement in the Report on Objectives, 

Fiscal Year 2017, supra note 3, and the Report on 

Activities, Fiscal Year 2016, supra note 42 and explained 

decisions in the Report on Activities, Fiscal Year 2016, 

supra note 42, and the Report on Objectives, Fiscal Year 

2018, supra note 4.

164 Rulemaking Items Discussed at the July 2017 Board 

Meeting (July 18, 2017) [hereinafter July Report], http://

www.finra.org/industry/update-finra-board-governorsmeeting-071817.

165 Robert W. Cook, President and CEO, FINRA, Protecting 

Investors From Bad Actors (June 12, 2017), http://www.

finra.org/newsroom/speeches/061217-protecting-investorsbad-actors.

166 July Report, supra note 164. 

167 Dan Jamieson, Brokers Get Aggressive In Erasing Old 

Complaints, Financial Advisor (July 28, 2017), https://

www.fa-mag.com/news/brokers-get-aggressive-in-erasingold-complaints-33919.html.

168 Id.

169 The broker must demonstrate to the arbitrators that the 

complaint was false, factually impossible, or that the broker 

was not involved with the investor. See FINRA, Rule 

2080(b) (2009); see also FINRA Rule 2080 Frequently 

Asked Questions, http://www.finra.org/industry/crd/rule2080-frequently-asked-questions.

170 If a retail investor knows that an opposing party is seeking 

expungement and the investor believes the expungement is 

unwarranted, the investor should consider participating in 

the expungement hearing to the challenge the expungement 

request. In addition, the investor may request from FINRA, 

or from the appropriate state securities regulator, to be 

informed when the broker files a petition for expungement. 

See Report on Activities, Fiscal Year 2016, supra note 42, 

at 38.

171 See Dan Jamieson, Finra Warns Arbitrators On 

Expungements, Financial Advisor (Sept. 25, 2017), 

https://www.fa-mag.com/news/finra-warns-arbitrators-onexpungements-34858.html.

172 Notice to Arbitrators and Parties on Expanded 

Expungement Guidance (updated Sept. 2017), https://

www.finra.org/arbitration-and-mediation/noticearbitrators-and-parties-expanded-expungement-guidance.

173 Report on Objectives, Fiscal Year 2018, supra note 4, at 

22-23.

174 Jill Gross, Finra Arbitrator Writes Explained Award to 

Create Precedent, Indisputably (June 30, 2017) [hereinafter 

Finra Arbitrator Writes], http://www.indisputably.

org/?p=11070.

175 Letter from Margo Hassan, Couns., FINRA, to Florence 

Harmon, Acting Sec’y, SEC (Dec. 15, 2008), https://www.

finra.org/sites/default/files/RuleFiling/p117545.pdf.

176 Id. at 2.

177 Tullis v. Ameriprise Fin. Services and Andrew Joseph Hall, 

FINRA Arb. No. 16-01261, http://www.finra.org/sites/

default/files/aao_documents/16-01261.pdf.

178 Id.
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 49

179 Id. at 5.

180 Id. at 8.

181 Finra Arbitrator Writes, supra note 174.

182 Phil Cottone, Comment to id.

183 In March 2005, FINRA proposed a rule that would have 

permitted investors to unilaterally request an explained 

decision, but later withdrew the rulemaking due to the 

“one-sided nature” of the rule. See Order Approving 

Proposed Rule To Require Arbitrators To Provide An 

Explained Decision Upon The Joint Request Of The 

Parties, Exchange Act Release No. 59358, 74 Fed. Reg. 

6,928 (published Feb. 11, 2009). It is difficult to believe 

that investors would complain about the “one-sided 

nature” of a unilateral rule permitting them to seek 

an explained decision. FINRA’s explanation of why it 

withdrew the rule can be translated as: FINRA withdrew 

the rule because it received pressure from the brokerdealer industry. In our prior discussion about the SEC’s 

supervisory powers over FINRA, if a rule proposal is 

consistent with Section 15A of the Exchange Act, the SEC 

cannot reject the rule. Hence, so long as an argument can 

be made that a rule benefits investors, there is little ground 

for the SEC to decline a rule proposal. In the case of the 

current rule permitting explained decisions upon the opt-in 

of both parties, FINRA may argue that it benefits the 

parties, even though the low number of explained decisions 

strongly suggests that the rule largely precludes investors 

from obtaining explained decisions.

184 On June 19, 2017, thirteen law professors who teach in the 

remaining securities arbitration clinics submitted a letter to 

FINRA regarding FINRA’s March 21, 2017 Special Notice: 

Engagement Initiative. Letter from Nicole G. Iannarone 

Director, Investor Advocacy Clinic, Georgia State University 

College of Law, et al. to FINRA (June 19, 2017), at 1 n.1, 

http://www.finra.org/sites/default/files/notice_comment_

file_ref/SN-32117_GSU_comment.pdf [hereinafter Clinic 

Comment Letter] (“There are currently eight law school 

clinics in New York state (Brooklyn, Cardozo, Cornell, 

Fordham, New York Law School, Pace, St. John’s, and 

Syracuse). California investors have access to two clinics 

(Pepperdine and University of San Francisco). Other 

clinics are in the District of Columbia (Howard), Georgia 

(Georgia State), Illinois (Northwestern), Florida (University 

of Miami), New Jersey (Seton Hall), and Pennsylvania 

(University of Pittsburgh).”). 

185 Report on Objectives, Fiscal Year 2017, supra note 3. 

186 Clinic Comment Letter, supra note 184. 

187 The Investor Advocate, the Ombudsman, and the Office 

are extremely appreciative of the time and effort extended, 

and the comprehensive recommendations made, by the 

clinic faculty and students in helping us make meaningful 

changes to policies affecting retail investors, particularly 

those investors in vulnerable populations.

188 Clinic Comment Letter, supra note 184. 

189 The Roundtable also devoted significant time to providing 

feedback to regulators on processes and rulemaking 

priorities. At the Roundtable, Clinic Directors also 

answered regulators’ questions and described trends, 

problematic products and other issues that affect small 

investors. Clinic Comment Letter, supra note 184, at 5.

190 Meeting with Elissa Germaine, Dir., and Jill Gross, Dir., 

Pace Univ. Sch. of Law, Investor Rights Clinic, in White 

Plains, N.Y. (Oct. 19, 2016); Meeting with Teresa J. Verges, 

Dir., and Scott A. Eichhorn, Supervising Attorney, Univ. of 

Miami Sch. of Law, Investor Rights Clinic, in Coral Gables, 

Fla. (Oct. 20, 2016); Meeting with David White, Founding 

Dir., Seton Hall Univ. Sch. of Law, Investor Advocacy 

Project, in Washington, D.C. (Aug. 2, 2017); Meeting with 

Howard S. Meyers, Instructor, New York Law School, New 

York Law School Legal Serv.’s, Inc., Sec. Arbitration Clinic, 

in New York, N.Y. (Aug. 7, 2017); Meeting with Christine 

Lazaro, Director, Francis “Jay” Facciolo, Assistant Dir., 

Ann Goldweber, Dir. of Clinical Legal Education, and 

Michael A. Simons, Dean, St. John’s Univ. School of Law, 

St. Vincent De Paul Legal Program, Inc., Sec. Arbitration 

Clinic, in Queens, N.Y. (Aug. 7, 2017); Meeting with 

Alice L. Stewart, Univ. of Pittsburgh School of Law, The 

Sec. Arbitration Clinic, in Pittsburgh, Pa. (Aug. 8, 2017); 

Meeting with J. Samuel Tenenbaum, Dir., and Colleen J. 

Balek, Atty., Northwestern Pritzker School of Law, Bluhm 

Legal Clinic, Investor Protection Clinic, in Chicago, Ill. 

(Aug, 9, 2017); Meeting with Nicole Iannarone, Dir. and 

Assistant Clinical Professor, Georgia State Univ. College of 

Law, Investor Advocacy Clinic, in Atlanta, Ga. (Aug. 10, 

2017); Meeting with Bruce Sanders, Supervising Attorney, 

and Cheryl Nichols, Associate Professor of Law, Howard 

University School of Law, Investor Justice and Education 

Clinic, in Washington, D.C. (Aug. 24, 2017); Meeting 

with Gary Pieples, Dir., Syracuse Univ. College of Law, Sec. 

Arbitration and Consumer Law Clinic, in Syracuse, N.Y. 

(Aug. 28, 2017); Meeting with William A. Jacobson, Dir., 

Cornell Univ. School of Law, Sec. Law Clinic, in Ithaca, 

N.Y. (Aug. 29, 2017); Meeting with Elizabeth Goldman, 

Dir., Yeshiva Univ., Benjamin N. Cardozo School of Law, 

Cardozo Sec. Arbitration Clinic, in New York, N.Y. (Sept. 

14, 2017) [hereinafter collectively LSCOP Meetings].

191 See generally LSCOP Meetings, id. For example, one clinic 

shared that they have recovered money for each of their 

clients. Meeting with Bruce Sanders, Supervising Attorney, 

Cheryl Nichols, Associate Professor of Law, Howard 

University School of Law, Investor Justice and Education 

Clinic, in Washington, D.C. (Aug. 24, 2017). 

192 Report on Objectives, Fiscal Year 2018, supra note 4, at 

5-11. 

193 During the Reporting Period, the Office contacted the 

Clinics and afforded each clinic the opportunity to identify 

potentially problematic products and practices. The full 

list of problematic products and practices is available on 

page 12 of the Report. See, e.g., Letter from Elizabeth 

Goldman et al., Director, Cardozo School of Law Securities 

Arbitration Clinic, to Tracey L. McNeil, Ombudsman, 

SEC (Oct. 6, 2017) (on file with the Office of the Investor 

Advocate); E-mail from Christine Lazaro, Dir., Securities 

Arbitration Clinic, to Ashlee Steinnerd, Senior Counsel, 

Office of the Investor Advocate, SEC (Sept. 14, 2017, 02:41 

EST) (on file with the Office of the Investor Advocate). 
50 | OFFICE OF THE INVESTOR ADVOCATE

194 During FY 2017, the Ombudsman and senior counsel 

visited twelve of the existing sixteen securities arbitration 

and investor advocacy clinics. The Ombudsman and senior 

counsel met with clinic directors, and in some instances 

clinic students. During the meetings, the work of the clinics 

was discussed in greater detail, including, but not limited 

to, the typical clinic client, the types of cases, and difficulties 

clinics face. See Clinic Comment Letter, supra note 184, at 2. 

195 See Northwestern, Guidelines for Establishing 

a Law School Investor Advocacy Clinic, at 16, 

https://www.finrafoundation.org/web/groups/

foundation/%40foundation/documents/foundation/

p118734.pdf [hereinafter Guidelines] (“Eligibility standards 

are partly a matter of choice for the sponsoring law school 

(depending on its concept of the kind of persons whom the 

clinic should assist), partly a matter of complying with state 

student practice rules, and partly determined by the terms 

set by those who provide financial support to the clinic. For 

instance, some clinics (e.g., Northwestern and St. John’s) 

will not handle claims in excess of $100,000. Others may 

(e.g., University of San Francisco) set the claim limit at 

$35,000.”). 

196 Jill I. Gross, The Improbable Birth and Conceivable Death 

of the Securities Arbitration Clinic, 15 Cardozo J. Conflict 

Resol. 597, 604 (2014) [hereinafter Gross, The Improbable 

Birth].

197 Id.

198 Id. See Guidelines, supra note 195. 

199 Clinic Comment Letter, supra note 184, at 7 (map marking 

locations of securities arbitration clinics in United States). 

200 See generally LSCOP Meetings, supra note 190; Clinic 

Comment Letter, supra note 184, at 2. 

201 See U.S. Census Bureau, Press Release, From Living 

Arrangements to Labor Force Participation, New Analysis 

Looks at State of the Nation’s 65-and-Older Population, 

Release Number CB14-124 (June 30, 2014), https://www.

census.gov/newsroom/press-releases/2014/cb14-124.

html (“Florida was among the states with the highest 

proportions of older people in their populations in 2010, 

along with West Virginia, Maine and Pennsylvania (all 

above 15 percent)”); Meeting with Alice L. Stewart, Univ. 

of Pittsburgh School of Law, The Sec. Arbitration Clinic, in 

Pittsburgh, Pa. (Aug. 8, 2017). 

202 LSCOP Meetings; Clinic Comment Letter, supra note 184, 

at 2. 

203 Clinic Comment Letter, supra note 184, at 5; see generally

LSCOP Meetings, supra note 190. 

204 During the Reporting Period, the Office also contacted 

Law School Clinics and afforded each clinic the 

opportunity to identify potentially problematic products 

and practices. The full list of problematic products and 

practices is available on page 12 of the Report. See, e.g., 

Letter from Elizabeth Goldman et al., Director, Cardozo 

School of Law Securities Arbitration Clinic, to Tracey L. 

McNeil, Ombudsman, SEC (Oct. 6, 2017) (on file with the 

Office of the Investor Advocate). 

205 Clinic Comment Letter, supra note 184, at 6; Gross, The 

Improbable Birth, supra note 196, at 617 (“Finally, perhaps 

the biggest challenge to [securities arbitration clinics] is the 

maintenance of ongoing funding.”). 

206 LSCOP Meetings, supra note 190; Clinic Comment Letter, 

supra note 184, at 6; Gross, The Improbable Birth, supra 

note 196, at 618. 

207 LSCOP Meetings; Clinic Comment Letter, supra note 184, 

at 6; Gross, The Improbable Birth, supra note 196, at 

619-20. 

208 Most recently, Florida International University and 

Michigan State University closed their securities arbitration 

clinics. See generally LSCOP Meetings, supra note 190. 

209 Meeting with Teresa J. Verges, Dir., Scott A. Eichhorn, 

Supervising Attorney, Univ. of Miami Sch. of Law, Investor 

Rights Clinic, in Coral Gables, Fla. (Oct. 20, 2016); Clinic 

Comment Letter, supra note 184, at 7. 

210 LSCOP Meetings, supra note 190. 

211 Clinic Comment Letter, supra note 184, at 4. 

212 LSCOP Meetings, supra note 190. See also Clinic Comment 

Letter, supra note 184, at 4 (“Clinics regularly provide inperson educational presentations at high schools, libraries, 

community centers, and to vulnerable groups including 

members of the military, seniors, young professionals, and 

faith communities.” (citation omitted)). 

213 Clinic Comment Letter, supra note 184, at 4. 

214 Id.

215 See LSCOP Meetings, supra note 190. 

216 Letter from Britny Auletti and Robyn Downing, Student 

Interns on behalf of the Investor Rights Clinic, John Jay 

Legal Services, Inc., Elisabeth Haub School of Law at Pace 

University, to Tracey L. McNeil, Ombudsman, SEC (Dec. 

12, 2016) (on file with the Office of the Investor Advocate). 

217 Exchange Act § 39(a), 15 U.S.C. § 78pp(a). 

218 Id.

219 Exchange Act § 39(a)(2)(B), 15 U.S.C. § 78pp(a)(2)(B). 

220 Exchange Act § 39(g), 15 U.S.C. § 78pp(g). 

221 Exchange Act § 39(h), 15 U.S.C. § 78pp(h). 

222 According to Exchange Act Section 4(g)(6)(B)(ii), 15 U.S.C. 

§ 78d(g)(6)(B)(ii), a Report on Activities must include 

several enumerated items, and it may include “any other 

information, as determined appropriate by the Investor 

Advocate.”

223 SEC, Recommendation of the Investor Advisory 

Committee: Crowdfunding Regulations (Apr. 10, 

2014), https://www.sec.gov/spotlight/investor-advisorycommittee-2012/investment-adviser-crowdfundingrecommendation.pdf; SEC, Final Rule, Crowdfunding, 

Securities Act Release No. 9974, 80 FR 71,387 (Nov. 16, 

2015). See Report on Objections, Fiscal Year 2017, supra 

note 3 for an analysis of how the final rules correspond 

with the IAC recommendations.
REPORT ON ACTIVITIES: FISCAL YEAR 201 7 | 51

224 SEC, Recommendation of the Investor Advisory Committee: 

Shortening the Trade Settlement Cycle in U.S. Financial 

Markets (Feb. 12, 2015), https://www.sec.gov/spotlight/

investor-advisory-committee-2012/settlement-cyclerecommendation-final.pdf. See also Press Release, SEC, SEC 

Adopts T+2 Settlement Cycle for Securities Transactions, 

2017-68 (Mar. 22, 2017), https://www.sec.gov/news/pressrelease/2017-68-0; Securities Transaction Settlement Cycle, 

Exchange Act Release No. 80295, 82 Fed. Reg. 15,564 

(Mar. 29, 2017).

225 SEC, Recommendation of the Investor Advisory 

Committee Decimalization and Tick Sizes, https://www.

sec.gov/spotlight/investor-advisory-committee-2012/

investment-adviser-decimilization-recommendation.pdf; 

Press Release, SEC, SEC Approves Pilot to Assess Tick Size 

Impact for Smaller Companies, 2015-82, (May 6, 2015), 

https://www.sec.gov/news/pressrelease/2015-82.html; see

Order Granting Exemption From Compliance With the 

National Market System Plan to Implement a Tick Size 

Pilot Program, Exchange Act Release No. 76382, 80 Fed. 

Reg. 70,284 (Nov. 13, 2015) (stating that Participants 

are exempt from implementing the Tick Size Pilot until 

October 3, 2016).

226 17 C.F.R. §§ 200.735-3(b)(2)(i), 230122 (2014); 

Exchange Act § 24(b), 15 U.S.C. § 78x; 5 U.S.C. § 552a(i)

(1); SECR18-2, Section 8.5 (Nonpublic Information) 

(July 31, 2005). 

227 SEC, Recommendation of the Investor Advisory Committee 

to Enhance Information for Bond Market Investors (June 

7, 2016), https://www.sec.gov/spotlight/investor-advisorycommittee-2012/recommendation-enhance-informationbond-market-investors-060716.pdf; see also MSRB, 

Regulatory Notice 2016-28, New Disclosure Requirements 

Under MSRB Rule G-15 and Prevailing Market Price 

Guidance Pursuant to Rule G-30 Effective May 14, 

2018 (Nov. 29, 2016), http://www.msrb.org/~/media/

Files/Regulatory-Notices/Announcements/2016-28.ashx 

[hereinafter MSRB Notice 2016-28]; FINRA, Regulatory 

Notice 17-08, Pricing Disclosure in the Fixed Income 

Markets (Feb. 2017), https://www.finra.org/sites/default/

files/notice_doc_file_ref/Regulatory-Notice-17-08.pdf 

[hereinafter FINRA Notice 17-08]. 

228 SRO; Notice of Filing of Amendment No. 1, supra note 

46; Self-Regulatory Organizations; Municipal Securities 

Rulemaking Board; Notice of Filing of Amendment No. 1 

and Order Granting Accelerated Approval of a Proposed 

Rule Change, as Modified by Amendment No. 1, to MSRB 

Rules G-15 and G-30 To Require Disclosure of MarkUps and Mark-Downs to Retail Customers on Certain 

Principal Transactions and To Provide Guidance on 

Prevailing Market Price, Exchange Act Release No. 79347, 

81 Fed. Reg. 84,637 (Nov. 23, 2016).

229 FINRA Notice 17-08, supra note 229; MSRB Notice 2016-

28, supra note 229. 

230 SEC, Press Release, SEC Announces the Formation and 

First Members of Fixed Income Market Structure Advisory 

Committee, 2017-209 (Nov. 9, 2017), https://www.sec.gov/

news/press-release/2017-209. 

231 SEC, Recommendation of the Investor Advisory 

Committee Regarding Mutual Fund Cost Disclosure

(Apr. 14, 2016), https://www.sec.gov/spotlight/investoradvisory-committee-2012/recommendation-mf-feedisclosure-041916.pdf. 

232 SEC, Recommendation of the Investor Advisory 

Committee: Empowering Elders and Other Investors 

Re: Background Checks in the Financial Markets (July 

16, 2015), https://www.sec.gov/spotlight/investoradvisory-committee-2012/final_iac_backgroundcheck_

recommendation_071615.pdf. 

233 Jay Clayton, Chairman, SEC, Remarks to the SEC Investor 

Advisory Committee (June 22, 2017), https://www.sec.gov/

news/public-statement/clayton-6-22-17.

234 SEC, Recommendation of the Investor Advisory Committee: 

Accredited Investor Definition (Oct. 9, 2014), https://

www.sec.gov/spotlight/investor-advisory-committee-2012/

investment-advisor-accredited-definition.pdf. 

235 Staff of the SEC, Report on the Review of the Definition 

of “Accredited Investor” (Dec. 18, 2015), https://www.sec.

gov/corpfin/reportspubs/special-studies/review-definition-ofaccredited-investor-12-18-2015.pdf.

236 SEC, Recommendation of the Investor Advisory 

Committee: Impartiality in the Disclosure of Preliminary 

Voting Results (Oct. 9, 2014), https://www.sec.gov/

spotlight/investor-advisory-committee-2012/impartialitydisclosure-prelim-voting-results.pdf. 

237 SEC, Recommendation of the Investor Advisory 

Committee: Legislation to Fund Investment Adviser 

Examinations (Nov. 22, 2013), https://www.sec.gov/

spotlight/investor-advisory-committee-2012/investmentadviser-examinations-recommendation-2013.pdf. 

238 Oversight of the U.S. Securities and Exchange Commission: 

Hearing Before the S. Comm. on Banking, Housing, and 

Urban Affairs, 115th Cong. (2017) (testimony of Jay 

Clayton, Chairman, SEC).

239 SEC, FY 2018 Congressional Budget Justification 

at 57, available at https://www.sec.gov/files/

secfy18congbudgjust.pdf.

240 SEC, Recommendation of the Investor Advisory Committee: 

Broker-Dealer Fiduciary Duty (Nov. 22, 2013), https://

www.sec.gov/spotlight/investor-advisory-committee-2012/

fiduciary-duty-recommendation-2013.pdf. 

241 Public Comments from Retail Investors and Other 

Interested Parties on Standards of Conduct for Investment 

Advisers and Broker-Dealers (June 1, 2017), available at 

https://www.sec.gov/news/public-statement/statementchairman-clayton-2017-05-31.

242 Examining the SEC’s Agenda, Operations, and 

Budget: Hearing Before the H. Comm. on Fin. Serv.’s, 

115th Cong. (2017) (testimony of Jay Clayton, 

Chairman, SEC). 
52 | OFFICE OF THE INVESTOR ADVOCATE

243 SEC, Recommendations of the Investor Advisory 

Committee: Regarding SEC Rulemaking to Explore 

Universal Proxy Ballots (July 25, 2013), https://www.sec.

gov/spotlight/investor-advisory-committee-2012/universalproxy-recommendation-072613.pdf. 

244 Universal Proxy, Exchange Act Release No. 79164, 

Investment Company Act Release No. 32339, 81 Fed. Reg. 

79,122 (proposed Nov. 10, 2016).

245 SEC, Recommendations of the Investor Advisory 

Committee Regarding the SEC and the Need for the Cost 

Effective Retrieval of Information by Investors (July 25, 

2013), https://www.sec.gov/spotlight/investor-advisorycommittee-2012/data-tagging-resolution-72513.pdf. 

246 The proposed rule would require all of the information 

on the cover pages of Form 10-K, Form 10-Q, Form 8-K, 

Form 20-F, and Form 40-F to be tagged in Inline XBRL. See 

FAST Act Modernization and Simplification of Regulation 

S-K, Securities Act Release No. 10425 (Oct. 11, 2017), 

https://www.sec.gov/rules/proposed/2017/33-10425.pdf.

247 Order Granting Limited and Conditional Exemption Under 

Section 36(a) of the Securities Exchange Act of 1934 from 

Compliance with Interactive Data File Exhibit Requirement 

in Forms 6-K, 8-K, 10-Q, 10-K, 20-F and 40-F to Facilitate 

Inline Filing of Tagged Financial Data, Exchange Act 

Release No. 78041, 81 Fed. Reg. 39,741 (June 17, 2016); 

Press Release, SEC, SEC Proposes Inline XBRL Filing of 

Tagged Data, 2017-56, (Mar. 1, 2017), https://www.sec.

gov/news/pressrelease/2017-56.html. 

248 SEC, Recommendation of the Investor Advisory 

Committee: Target Date Mutual Funds (Apr. 11, 

2013), https://www.sec.gov/spotlight/investor-advisorycommittee-2012/iac-recommendation-target-date-fund.pdf. 

249 Investment Company Advertising: Target Date Retirement 

Fund Names and Marketing, Securities Act Release No. 

9570, Exchange Act Release No. 71861, Investment 

Company Act Release No. 31004, 79 Fed. Reg. 19,564 

(proposed Apr. 9, 2014).

250 SEC, Recommendations of the Investor Advisory 

Committee Regarding SEC Rulemaking to Lift the Ban 

on General Solicitation and Advertising in Rule 506 

Offerings: Efficiently Balancing Investor Protection, Capital 

Formation and Market Integrity (2012), https://www.sec.

gov/spotlight/investor-advisory-committee-2012/iac-generalsolicitation-advertising-recommendations.pdf. 

251 Eliminating the Prohibition Against General Solicitation 

and General Advertising in Rule 506 and Rule 144A 

Offerings, Securities Act Release No. 9415, Exchange Act 

Release No. 69959, Investment Advisers Act Release No. 

3624, 78 Fed. Reg. 44,771 (July 24, 2013); Disqualification 

of Felons and Other “Bad Actors” from Rule 506 

Offerings, Securities Act Release No. 9414, 78 Fed. Reg. 

44,729 (July 24, 2013); Amendments to Regulation D, 

Form D and Rule 156, Securities Act Release No. 9416, 

Exchange Act Release No. 69960, Investment Company 

Act Release No. 30595, 78 Fed. Reg. 44,806 (proposed 

July 24, 2013).

OFFICE OF THE 

INVESTOR ADVOCATE

U.S. Securities and 

Exchange Commission

100 F Street NE

Washington, DC 20549

202.551.3302