REPORT ON OBJECTIVES FISCAL YEAR 2020

U.S. SECURITIES AND EXCHANGE COMMISSION
REPORT ON OBJECTIVES: FISCAL YEAR 2020 | i

OFFICE OF THE INVESTOR ADVOCATE

REPORT ON OBJECTIVES

FISCAL YEAR 2020

Section 4(g) of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. § 78d(g), 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 no later than June 30 of each year, and its purpose is to 

set forth the objectives of the Investor Advocate for the following fiscal year.2 The instant report 

contains a summary of the Investor Advocate’s primary objectives for Fiscal Year 2020, beginning 

October 1, 2019.

A Report on Activities is due no later than December 31 of each year, and it describes the 

activities of the Investor Advocate during the preceding fiscal year.3

 For Fiscal Year 2020, the 

activities and accomplishments of the Office will be reported no later than December 31, 2020.

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

is provided directly to Congress without any prior review or comment from the Commission, any Commissioner, any other officer or employee of the Commission, or the Office of Management and Budget. Thus, 

the Report 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 the Report and all analyses, findings, and conclusions contained herein.
REPORT ON OBJECTIVES: FISCAL YEAR 2020 | iii

CONTENTS

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

OBJECTIVES OF THE INVESTOR ADVOCATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

POLICY AGENDA FOR FISCAL YEAR 2020. 

Corporate Disclosure and Investor Protection in Registered and Exempt Offerings. 

The Proxy Process and Other Proxy Issues. 

Equity Market Structure. 

Fixed Income Market Reform. 

Accounting and Auditing. 

Non-Transparent Exchange-Traded Funds. 

Protecting Senior Investors.  

Broker Migration and Misconduct. 

OMBUDSMAN’S REPORT. 

Service by the Numbers. 

Service Behind the Numbers . 

Streamlined Communications with Retail Investors. 

Standards of Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1

Areas of Interest and Importance to Retail Investors.  

Law School Clinic Outreach Program. 

Objectives and Outlook . 

SUMMARY OF INVESTOR ADVISORY COMMITTEE 

RECOMMENDATIONS AND SEC RESPONSES . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

END NOTES. 

REPORT ON OBJECTIVES: FISCAL YEAR 2020 | 1

MESSAGE FROM THE

INVESTOR ADVOCATE

I

t is my pleasure to present this report on the 

objectives of the Office of the Investor Advocate 

for Fiscal Year 2020. Our Office seeks to 

provide a voice for investors in the rulemaking 

and policymaking processes at the U.S. Securities 

and Exchange Commission (SEC) and the selfregulatory organizations (SRO) such as the 

Financial Industry Regulatory Authority (FINRA) 

and the Municipal Securities Rulemaking Board 

(MSRB). As I previewed in a speech in April 2019, 

there are many items on the SEC’s rulemaking 

agenda that should please investors, but there are 

a few things that are more concerning. The same is 

true for the policymaking agendas of FINRA, the 

MSRB, and some of the other SROs.

As described in more detail below in our Policy 

Agenda for Fiscal Year 2020, we expect to support 

a number of initiatives in the upcoming year. At 

the SEC, we are especially optimistic about some 

of the ideas flowing from the Division of Trading 

and Markets, which we believe will benefit retail 

investors in particular. These ideas, if adopted, will 

lead to markets that are fundamentally more transparent and fair. Likewise, the MSRB is exploring 

ways to improve disclosures in the municipal 

securities marketplace, and FINRA is making 

strides to address some longstanding concerns 

with its arbitration procedures, unpaid arbitration

awards, the migration of unscrupulous brokers, 

and other issues. We will support these efforts 

as appropriate.

On the other hand, we 

remain wary about certain 

suggestions that would 

reduce the disclosure of 

information to investors or 

that could undermine the 

reliability of the information, such as removing 

a requirement for auditors 

to attest to management’s 

assessment of the effectiveness of a company’s 

internal control over financial reporting. And, 

while we believe improvements should be made 

to the proxy voting process, we are concerned 

that certain aspects of those reforms may suppress 

voting by shareholders or interfere with their ability 

to receive objective, independent advice regarding 

their voting decisions. 
2 | OFFICE OF THE INVESTOR ADVOCATE

As the Investor Advocate, I am delighted to lend 

my support to initiatives that enhance investor 

protection or improve the investing ecosystem. 

Given the resistance by other market participants to 

some of the reforms, an important part of my job 

is to support the work of the SEC and SROs when 

they propose changes that would benefit investors. 

At the same time, I am obligated to point out when 

rule and policy changes threaten to harm investors 

or fall short of their intended goals. In Fiscal Year 

2020, we will zealously advocate for investors in 

both ways.

In addition to our policy work, we will continue 

to provide direct service to investors who have 

concerns about the SEC or an SRO. Ombudsman 

Tracey McNeil and her team interact with investors

on a daily basis, and their activities and objectives are described in the Ombudsman’s Report 

(see page 13). We also will continue our efforts to 

utilize surveys and other research methods to glean 

more insights about the investors we serve. For 

example, we will study how individual investors 

process information to make important financial 

decisions, and we will strive to fill gaps in the 

research concerning the impact of cognitive decline 

on financial capability.

It remains a distinct privilege to lead these efforts on 

behalf of American investors for a sixth year, and I 

am indebted to the talented women and men in our 

Office who support me in this mission. As always, 

I would welcome the opportunity to provide 

additional information to Members of Congress.

Sincerely, 

Rick A. Fleming

Investor Advocate
REPORT ON OBJECTIVES: FISCAL YEAR 2020 | 3

OBJECTIVES OF THE 

INVESTOR ADVOCATE

As set forth in Exchange Act Section 4(g)

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

Advocate is required to perform the 

following functions:

(A) assist retail investors in resolving 

significant problems such investors 

may have with the Commission or with 

self-regulatory organizations (SRO);

(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 . 

Assisting Retail Investors

Exchange Act Section 4(g)(4)(A) directs the Investor 

Advocate to assist retail investors in resolving 

significant problems such investors may have 

with the Commission or with SROs.4 To help 

accomplish that objective, the Investor Advocate 

has appointed an Ombudsman to, among other 

things, act as a liaison between the Commission 

and any retail investor in resolving problems that 

retail investors may have with the Commission or 

with SROs.5

 As required by statute, a semi-annual 

report from the Ombudsman is included within this 

Report on Objectives.6

Identifying Areas in Which Investors Would 

Benefit from Regulatory Changes

Exchange Act Section 4(g)(4)(B) requires the 

Investor Advocate to identify areas in which 

investors would benefit from changes in the 

regulations of the Commission or the rules of 

SROs.7 This is a broad mandate that authorizes the 

Investor Advocate to examine the entire regulatory 

scheme, including existing rules and regulations, 

to identify those areas that could be improved for 

the benefit of investors. For example, the Investor 

Advocate may look at the rules and regulations 

governing existing equity market structure to 

determine whether any regulatory changes would 

benefit investors. These and other concerns are 

discussed in greater detail below in the section 

entitled Policy Agenda for Fiscal Year 2020.

Identifying Problems with Financial Service 

Providers and Investment Products

Exchange Act Section 4(g)(4)(C) requires the 

Investor Advocate to identify problems that 

investors have with financial service providers 

and investment products.8

 The Investor Advocate 
4 | OFFICE OF THE INVESTOR ADVOCATE

continues to monitor investor inquiries and 

complaints, SEC and SRO staff reports, enforcement actions, and other data to determine 

which financial service providers and investment 

products may be problematic. As required by 

Exchange Act Section 4(g)(6), these problems 

will be described in the Reports on Activities to 

be filed in December of each year.

Analyzing the Potential Impact on Investors 

of Proposed Rules and Regulations

Exchange Act Section 4(g)(4)(D) directs the 

Investor Advocate to analyze the potential impact 

on investors of proposed regulations of the 

Commission and proposed rules of SROs.9 As 

required, in Fiscal Year 2020 the Office will review 

all significant rulemakings of the Commission and 

SROs, and we will communicate with investors 

and their representatives to determine the potential 

impact of proposed rules. In addition, we will 

study investor behavior and utilize a variety of 

research methods to examine the efficacy of 

policy proposals.

Proposing Appropriate Changes to the 

Commission and to Congress

Exchange Act Section 4(g)(4)(E) provides that, 

to the extent practicable, the Investor Advocate 

may 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. As we study the issues in 

our Policy Agenda for Fiscal Year 2020, as set forth 

below, we will likely make recommendations to the 

Commission and Congress for changes that will 

promote the interests of investors.

Supporting the Investor 

Advisory Committee

Exchange Act Section 39 establishes the Investor 

Advisory Committee (IAC or Committee).11 As 

discussed in greater detail below in the section 

entitled Summary of Investor Advisory Committee 

Recommendations and SEC Responses, the 

purpose of the Committee is to advise and consult 

with the Commission on regulatory priorities, 

issues impacting investors, initiatives to protect 

investors, and related matters. The Investor 

Advocate is a member of the IAC,12 and the Office 

will continue to provide staff and operational 

support to the IAC during Fiscal Year 2020.
REPORT ON OBJECTIVES: FISCAL YEAR 2020 | 5

POLICY AGENDA FOR 

FISCAL YEAR 2020

As described above, the statutory mandate 

for the Office of the Investor Advocate 

is broad, and much of our time is consumed with the review of rulemakings that flow 

through the Commission and SROs. We monitor 

all rulemakings, but we prioritize certain issues 

so that we can develop expertise in those areas 

and maximize our impact for investors with the 

resources we have available. After discussions with 

numerous knowledgeable parties, both inside and 

outside the Commission, and after due consideration, the Investor Advocate has determined that 

the Office will focus upon the following issues 

during Fiscal Year 2020:

§	Corporate Disclosure and Investor Protection 

in Registered and Exempt Offerings

§	The Proxy Process and Other Proxy Issues

§	Equity Market Structure

§	Fixed Income Market Reform

§	Accounting and Auditing

§	Non-Transparent Exchange-Traded Funds

§	Protecting Senior Investors

§	Broker Migration and Misconduct

Although other issues may arise that will require 

the attention of the Office, the foregoing issues will 

remain on our policy agenda for FY 2020.

CORPORATE DISCLOSURE AND 

INVESTOR PROTECTION IN 

REGISTERED AND EXEMPT OFFERINGS

The Commission is in the midst of a years-long 

effort to review and modernize corporate disclosure 

requirements. Generally speaking, these requirements have been in place for decades and have 

not been reviewed recently in the comprehensive, 

conceptual way that they are being reviewed now. 

Although the Commission’s statutory authority 

over disclosure is broad, the Commission must 

address certain Congressional directives when 

promulgating disclosure rules. These directives 

have evolved over time. For instance, Congress 

originally authorized the Commission to do what 

was “necessary or appropriate in the public interest 

or for the protection of investors.”13 The New 

Deal implementation of the system of compulsory 

corporate disclosure that we have today was 

designed to address widespread evidence of issuer 

and underwriter omission or distortion of material 

investment information.14 It was not until later, 

after decades of experience with the system, that 

Congress directed the Commission further to 

“consider, in addition to the protection of investors, 

whether the [rulemaking] action will promote 

efficiency, competition, and capital formation.”15
6 | OFFICE OF THE INVESTOR ADVOCATE

These Congressional directives are not necessarily 

at odds with each other. In our view, it is possible 

to modernize disclosure in a way that achieves 

these latter goals without undermining the original 

goal of investor protection. Indeed, efforts to 

streamline disclosure can be beneficial to investors, 

who ultimately bear the costs of the disclosure and 

are not well-served when information is repetitive, 

boilerplate, or difficult to find. Main Street 

investors also benefit when businesses go through 

the transformation from a private company to a 

public reporting company because it is a process 

that produces stronger companies that tend to 

better serve the interests of investors.16 Thus, after 

careful review, we have not objected to some of 

the Commission’s efforts to update the disclosure 

requirements for public companies, such as the 

recent adoption of a package of amendments to 

reduce redundant information.17

There are areas, however, in which the policy goals 

of investor protection and capital formation are in 

tension, and the Commission must attempt to find 

an appropriate balance. In striking this balance, the 

Commission should focus not just on the burden of 

providing the disclosure, but also the materiality of 

the information. In our view, this approach should 

underpin Commission choices about disclosure, 

and it should lead to consideration of new 

disclosure requirements as well as the elimination 

of existing requirements.

It is well established that information is deemed 

“material” if there is a substantial likelihood that 

a reasonable investor would consider it important 

in deciding how to vote or make an investment 

decision.18 This is a commonsense approach, 

but it is not a static standard. Information that 

was not very important to an investor in the 

1930s and 1940s may be extremely important 

to a “reasonable” investor today. As the Investor 

Advisory Committee has observed,19 modern 

companies rely much more heavily on human 

capital and less on hard assets such as plants and 

equipment, which means that information about 

a company’s most important assets may not be 

found in financial statements or existing corporate 

disclosures. Other issues—often panned as politically motivated—seem to be growing in importance 

to investors. For example, in the face of shareholder demands for greater disclosure of political 

spending, which exposes a company to potentially 

significant reputational risk, 59 percent of S&P 

500 companies now provide this type of disclosure 

even in the absence of an SEC mandate.20 Similarly, 

assets in socially responsible or sustainable mutual 

funds and ETFs reached a record $89 billion at the 

end of 2018, reflecting investors’ growing concern 

with things like climate change.21

During Fiscal Year 2020, the Office will continue 

to explore the informational needs of modern 

investors and advocate for policy adjustments 

to accommodate those needs. In addition, we 

will continue to review the projects that are on 

Chairman Jay Clayton’s regulatory and policy 

agenda, including the following projects relating to 

corporate disclosure:

§	Exploring a framework for harmonizing and 

streamlining the Commission’s rules for exempt 

offerings;22

§	considering amendments to Regulation S-K to 

modernize certain disclosure requirements;23

§	considering updates to certain industry-specific 

disclosure requirements, such as those pertaining 

to financial services companies’ lending activities 

and loan portfolios;24

§	considering a proposal to amend the definition 

of “accelerated filer” that triggers Section 404(b) 

of the Sarbanes-Oxley Act of 2002, which 

requires registrants to provide an auditor attestation report on internal control over financial 

reporting, and that if adopted will have the 

effect of reducing the number of companies that 

need to provide the auditor attestation report;25

§	considering changes to rules in Regulation S-X 

related to requirements for financial statements 

for acquired businesses26 and also for registered 

debt offerings;27 and
REPORT ON OBJECTIVES: FISCAL YEAR 2020 | 7

§	considering amendments to extend the “test the 

waters” provision of the Jumpstart Our Business 

Startups Act to companies that are not emerging 

growth companies.28

Importantly, we will continue to engage in investor 

outreach and share feedback internally with our 

Commission colleagues. Interaction with market 

participants is extremely valuable as we try to 

provide actionable insights for Commission 

colleagues who otherwise might not hear directly 

from portfolio managers, analysts, and other 

everyday investors. As always, we will continue 

to keep the interests of long-term Main Street 

investors front-of-mind, consistent with Chairman 

Clayton’s stated priority.29 

THE PROXY PROCESS AND 

OTHER PROXY ISSUES

The Commission is expected to continue to focus 

on proxy issues in the coming fiscal year. In 

November 2018, the Commission held a proxy 

roundtable, where speakers representing a range of 

institutions and viewpoints discussed such topics as 

the proxy voting process, the shareholder proposal 

process, and the role of proxy advisory firms.30

In December 2018, the Chairman commented on 

the roundtable discussion and next steps. Among 

other things, he encouraged market participants 

to consider how technology, including distributed 

ledger technology, could improve proxy plumbing. 

He added that, since a major overhaul could take 

time, the Commission should focus on what it can 

do in the interim to improve the current system.31

In May 2019 testimony to Congress, Chairman 

Clayton reiterated the importance of the proxy 

process, calling it a significant initiative for two 

SEC divisions (those of Corporation Finance 

and Investment Management). The Commission, 

he believed, should act with an initial focus on 

the matters where there was broad consensus.32 

We concur.

In the coming year, we will be very focused on 

any rule proposals to emerge on the proxy voting 

process, including efforts to foster accurate vote 

counts, vote reconciliations, and vote confirmations 

for investors. We believe there is much room for 

improvement, as well as considerable agreement 

about potential reforms in these areas, and we look 

forward to supporting enhancements to the proxy 

voting system. We will also be monitoring any 

rulemaking developments regarding proxy advisory 

firms and the other issues discussed at the 2018 

roundtable. Some of these matters are subject to 

far less consensus because investors are concerned 

about potential reforms that may, for example, 

give companies more opportunities to influence 

the advice that is provided to investors from proxy 

advisory firms and thereby weaken the objectivity 

or credibility of that advice. These concerns were 

highlighted in a speech by the Investor Advocate 

on April 8, 2019.33

EQUITY MARKET STRUCTURE

As noted in our prior Reports on Objectives, the 

Commission has been engaged in a multi-year 

effort to improve the environment for modern 

trading.34 We have supported a number of 

regulatory proposals that were recently adopted, 

including amendments to Regulation ATS to 

enhance the operational transparency of venues 

that trade listed equity securities35 and amendments 

to Rule 606 to require broker-dealers to disclose 

the handling of institutional orders.36 During Fiscal 

Year 2020, we will continue to encourage the 

pursuit of initiatives to enhance the capital markets 

and benefit investors.

In March 2019, Chairman Clayton and Brett 

Redfearn, Director for the Division of Trading and 

Markets, gave a joint speech about their objectives 

for the coming year with respect to equity market 

structure.37 The speech focused on three broad 

topics: (1) exploring ways to address liquidity 

issues experienced by thinly-traded securities in 

our markets; (2) better protecting retail investors 
8 | OFFICE OF THE INVESTOR ADVOCATE

from fraudulent conduct in the market; and (3) 

considering improvements to the national system of 

market data and market access. More specifically, 

they outlined plans to consider the following issues:

§	Pilot programs for thinly-traded securities to 

explore the effects of restricting unlisted trading 

privileges (UTP), which otherwise permit all 

exchanges to act as separate trading venues for 

the listed security. Concentrating liquidity on the 

primary listing exchange could make it easier 

for buyers and sellers to find each other and 

consummate trades in this smaller segment of 

the equity market. Such a pilot could also allow 

for other innovative market structure solutions, 

including periodic auctions. 

§	Amendments to Rule 15c2-11, which currently 

requires a broker-dealer to review certain issuer 

information and have a reasonable basis for 

believing such information is accurate before 

initiating quotations for “over-the-counter” 

securities, but then allows the quotes to 

continue indefinitely, even after current public 

information about the issuer becomes stale. This 

indefinite exception may permit unscrupulous 

market participants to more easily engage in 

pump-and-dump retail fraud.

§	Enhancements to the rules governing transfer 

agents, as previously discussed in a December 

2015 advanced notice of rulemaking and a 

concept release,38 which could, in part, specify 

transfer agent obligations with respect to the 

tracking and removal of restrictive legends. If 

improved rules can prevent the improper or 

inappropriate removal of a legend, investors 

would be better protected from the harm that 

comes from the illegal public distribution of 

such securities. 

§	As to equity market trade and quote data, 

enhancements to the transparency around 

the national securities exchanges’ proprietary 

data products and fees, improvements to 

the governance of National Market System 

(NMS) plans to allow for appropriate 

representation, and upgrades to the content 

and infrastructure for the “core data” that is 

consolidated and widely distributed by central 

securities processors (the SIP). Improving the 

infrastructure around market data in these ways 

could ultimately benefit retail investors, either 

directly or as participants in mutual funds and 

pension funds. 

We share the Chairman’s interest in all of these 

topics and we expressed our support for this 

ambitious policy agenda in a speech on April 

8, 2019. During Fiscal Year 2020, we intend to 

continue our engagement on all of these issues.

In December 2018, the Commission adopted a rule 

to conduct a transaction fee pilot for NMS stocks.39

The rule will subject the stock exchanges to new 

temporary pricing restrictions across two test 

groups and thereby reduce or eliminate the use of 

so-called “maker-taker” fee-and-rebate pricing for 

transactions in those securities. We evaluated the 

proposed pilot and believe that it can potentially 

answer questions concerning broker-dealer conflicts 

of interest in order routing behavior. Accordingly, the Investor Advocate, as a voting member 

of the Investor Advisory Committee, supported 

a recommendation to the Commission to move 

forward with the pilot.40 Since its adoption, we 

have continued to support the implementation of 

the pilot as quickly as possible during our informal 

interactions with Commissioners and staff. In 

Fiscal Year 2020, we hope to carefully consider 

data collected by the pilot to evaluate potential 

equity market structure reforms. Ultimately, we 

will consider whether lowering or eliminating these 

fees and rebates on a permanent basis will improve 

market quality for investors.

We continue to monitor progress on the implementation of the Commission’s Consolidated Audit 
REPORT ON OBJECTIVES: FISCAL YEAR 2020 | 9

Trail. This system, years in the making and years 

behind schedule, is intended to enhance, centralize, 

and generally update the regulatory data infrastructure available to market regulators.41

In addition to evaluating rulemaking by the 

Commission during Fiscal Year 2020, we will 

continue to examine the hundreds of rule proposals 

that are filed with the Commission by the SROs. 

Typically, a number of these filings involve market 

structure issues that impact investors. For example, 

the NASDAQ Stock Market has recently proposed 

heightened initial quantitative listing standards for 

liquidity, which may improve the secondary market 

experience for some new listings.42 Where appropriate, we will make formal recommendations or 

utilize the comment process to ensure that the needs 

of investors are properly considered by the SROs 

and the Commission.

FIXED INCOME MARKET REFORM

Municipal securities and certain segments of the 

fixed income market continue to have high rates 

of participation by individual investors.43 Municipal 

securities and other fixed income securities play an 

important part in individual investors’ investment 

and retirement strategies because they may provide 

an income-producing investment.44 In Fiscal Year 

2020, the Office will continue to monitor these 

sectors for issues that directly and indirectly impact 

retail investors.

In the past year, the Commission’s Fixed Income 

Market Structure Advisory Committee (FIMSAC) 

made a recommendation for a pilot program 

to study market implications of changing the 

reporting regime for block-size trades in corporate 

bonds by introducing a delay for larger trades,45

and FINRA issued a request for comment regarding 

a pilot of this nature.46 The FIMSAC has also 

discussed liquidity considerations for bond ETFs, 

retail investor disclosure and education, electronic 

trading in the retail market, and block trade 

dissemination in municipal securities and corporate 

bonds.47 More recently, the FIMSAC has begun 

to consider additional recommendations related 

to the use of last-look in both the corporate and 

municipal bond markets;48 principal transactions 

with advisory clients seeking to liquidate bond 

positions; and principal transactions with advisory 

clients in negotiated municipal underwritings.49

In January and April 2019, the Municipal Securities 

Rulemaking Board held quarterly meetings to 

discuss MSRB activities and initiatives.50 During its 

January meeting, the Board discussed retrospective 

rule review, market transparency, and financial 

oversight.51 During its April meeting, the Board 

discussed, among other things, municipal securities 

financial disclosure timeliness, pennying, and 

upcoming enhancements to EMMA.52

Throughout Fiscal Year 2020, the Office of the 

Investor Advocate will monitor, analyze, and review 

relevant Commission, FIMSAC, and SRO activities 

relating to fixed income markets—with particular 

attention to committee recommendations, rule 

amendments, and rule proposals impacting 

individual investors in municipal securities markets 

and corporate bond markets. 
10 | OFFICE OF THE INVESTOR ADVOCATE

ACCOUNTING AND AUDITING

High-quality financial reporting is essential to 

investors in their investment and voting decisions. It 

is therefore important for the Office of the Investor 

Advocate to track accounting and auditing issues, 

to represent investors in the policymaking process, 

and to encourage investors themselves to express 

their views.

In previous reports to Congress, we have emphasized the importance of public companies’ 

internal control over financial reporting (ICFR) 

as well as attestation of a company’s ICFR from 

an independent external auditor.53 We also have 

flagged the potential issue of expanding exemptions for smaller companies from the requirement 

to obtain attestation of ICFR from an independent 

external auditor.54 Both activities—ICFR and 

auditor attestation—serve to promote investor 

confidence in financial reporting. 

On May 9, 2019, the Commission voted to 

propose amendments that would have the effect 

of exempting more smaller companies from the 

requirement to obtain auditor attestation of 

ICFR.55 As a result of the proposed amendments, 

smaller reporting companies with less than $100 

million in revenues would not be required to obtain 

such auditor attestation. All companies, including 

smaller ones, would continue to be subject to 

requirements to establish, maintain, and assess the 

effectiveness of their ICFR. In the coming months, 

we will closely monitor this rulemaking, and we 

encourage investors to submit comments on it. 

As in past years, we will stay abreast of new 

developments in accounting and auditing while 

continuing to focus on recent trends, including 

the use of non-GAAP financial measures. We will 

continue to monitor developments at the Financial 

Accounting Standards Board (FASB) and the Public 

Company Accounting Oversight Board (PCAOB), 

and we will explore ways to identify and close any 

expectation gaps regarding financial reporting and 

the role of the auditor. We also will continue to 

follow developments in international accounting 

and auditing standards and their impact on U.S. 

companies and investors.

NON-TRANSPARENT 

EXCHANGE-TRADED FUNDS

On May 20, 2019, the Commission granted the 

exemptive relief requested by Precidian ETFs Trust 

(Precidian) to introduce into the exchange-traded 

fund (ETF) marketplace a novel type of actively 

managed ETF—called an “ActiveShares ETF”—

that would not be required to disclose its portfolio 

holdings on a daily basis.56 As a result, should 

ActiveShares ETFs come to market, they would 

be permitted to operate without being subject to 

the current daily portfolio transparency condition 

required of other actively managed ETFs.57

The Commission based its grant of exemptive 

relief on the reasons articulated in a notice issued 

in connection with Precidian’s application on April 

8, 2019 (the Notice),58 as well as on other considerations discussed in the Commission’s approval 

order. The Notice explained that Section 6(c) of 

the Investment Company Act of 1940 (the ’40 Act) 

allows the Commission to exempt any person, 

security, or transaction, or any class thereof, 

only “if and to the extent that such exemption is 

necessary or appropriate in the public interest and 

consistent with the protection of investors and the 

purposes fairly intended by the policy and provisions of [the ’40 Act].”59 The Notice stated that the 

Commission intended to grant the requested relief 

because “the Commission believes that ActiveShares ETFs meet the standard for exemptive relief 

under section 6(c)” of the ’40 Act.60

Given the novelty of the ActiveShares ETF, 

Precidian has agreed to comply with certain 

protective conditions outlined in the Notice, 

including, among other things, providing public 
REPORT ON OBJECTIVES: FISCAL YEAR 2020 | 11

disclosures explaining that the bid-ask spreads and 

premiums/discounts for ActiveShares ETFs may be 

wider than those for traditional ETFs (thus making 

trading in ActiveShares ETFs more expensive); 

disclosure of the risk of “reverse engineering” 

an ActiveShares ETF’s trading strategy, which 

could increase opportunities for trading practices 

that may disadvantage the ActiveShares ETF 

and its shareholders; the inclusion of a legend 

on the outside cover page of each ActiveShares 

prospectus, as well as on its website and marketing 

materials, to highlight the differences between the 

ActiveShares ETFs and fully transparent actively 

managed ETFs; compliance with the requirements 

of Regulation Fair Disclosure as if it applied to 

Precidian, thus prohibiting ActiveShares ETFs’ 

selective disclosure of any material non-public 

information; and the commitment to take remedial 

actions as necessary if the ActiveShares ETFs do 

not function as anticipated.61

Among the other considerations informing the 

Commission’s determination to grant the requested 

exemptive relief were the two submissions that the 

Commission received from a third party following 

the issuance of the Notice.62 Those submissions 

contended that the proposed operation of the 

ActiveShares ETFs as provided for in Precidian’s 

application for exemptive relief would involve 

insider trading in violation of section 10(b) of the 

Exchange Act and rule 10b-5 thereunder.63 After 

reviewing the submissions, Precidian’s response to 

them, and Precidian’s application for exemptive 

relief, the Commission was not persuaded that the 

operation of the ActiveShares ETFs as specified 

in Precidian’s application would involve unlawful 

trading in material non-public information.64

For the foregoing reasons, among others, the 

Commission granted the requested exemptions.

We have been, and will continue to be, involved 

in discussions with Commission leadership and 

staff regarding non-transparent ETFs generally. 

We anticipate additional requests for exemptive 

relief for other types of non-transparent ETFs well 

into Fiscal Year 2020, and we expect to remain 

engaged in internal conversations regarding such 

investment products during that time. The age-old 

challenge associated with these types of products 

is how to achieve the appropriate balance between 

financial innovation, which can result in new 

products coming to market that may be beneficial 

to investors, and investor protection concerns that 

may arise from new products coming to market.

PROTECTING SENIOR INVESTORS

When our Office was established five years ago, 

we made protecting seniors a priority issue, and we 

have focused on this topic ever since. As a result 

of demographic, financial and other trends, elder 

financial exploitation and diminished capacity 

are important issues today, and the problems are 

expected to grow dramatically in coming years. In 

recent years, there also has been increasing recognition of the challenges of protecting seniors. We 

have seen significant regulatory and legal developments at the state and federal levels to give financial 

firms and financial professionals new tools to 

protect their senior customers. We supported these 

efforts, and our office has published two white 

papers in 2018 and 2019 that discuss causes of 

elder financial exploitation as well as legal and 

regulatory developments.65

In the coming fiscal year, we intend to continue our 

efforts to raise public awareness and to elucidate 

issues and policy choices. We plan to monitor 

new legal or regulatory developments and, in 

general, to contribute to the Commission’s efforts 

to protect senior investors. In addition, we are 

exploring potential research projects, utilizing our 

investor testing program, to fill gaps in the existing 

data regarding the impact of cognitive decline on 

financial capability.
12 | OFFICE OF THE INVESTOR ADVOCATE

BROKER MIGRATION 

AND MISCONDUCT

Last December, in our Report on Activities for 

Fiscal Year 2018, we discussed the persistent 

problem of broker migration and misconduct.66

Studies show a strong correlation between the 

frequency with which a broker moves between firms and the risk posed by that broker 

to his or her customers.67 Research also has 

identified a propensity for roving bad brokers to 

congregate at high-risk firms with other brokers 

of similar character (sometimes referred to as 

“cockroaching”).68

As outlined in our last report, FINRA took steps 

in Fiscal Year 2018 to curb broker migration by 

re-emphasizing or strengthening existing standards 

and by publishing multiple proposed rule changes. 

FINRA focused on expanded restrictions on 

broker movement if there are pending or unpaid 

arbitration awards,69 requirements for materiality 

consultations with FINRA if a member firm seeks 

to enter into certain specified relationships with 

a bad broker,70 modified sanctioning guidelines,71 

enhanced supervisory procedures,72 and augmented 

disclosure standards.73

On May 2, 2019, FINRA published a new request 

for comment on proposed rules targeting firms 

with a disproportionate history of broker and other 

misconduct relative to their similarly-sized peers. 

The proposed new Rule 4111 (Restricted Firm 

Obligations)74 would impose, in certain instances, 

conditions or restrictions on member operations, 

including requirements for deposits of cash or 

qualified securities that could not be withdrawn 

without FINRA’s prior written consent, if a firm 

exceeds a certain threshold calculation of broker or 

other misconduct.75

Generally, we are encouraged that FINRA has 

begun to crack down on broker migration and 

misconduct. Effective regulation of bad actors, both 

individuals and firms, is critical to the safety of 

retail investors. As such, we intend to monitor this 

specific rulemaking, as well as related initiatives, 

during the next fiscal year. Our review will likely 

consider, among other things: how to properly 

account for purged or non-public information 

relevant to broker risk,76 specific weightings 

assigned to the proposed categories of risk events 

or conditions, relevant aggravating circumstances 

(e.g., hiring of extreme recidivist brokers, brokers 

who have previously migrated excessively, and 

brokers who have preyed on seniors), proper 

calibration of the percentage thresholds and 

deposit amounts in the proposed rule, the procedures governing the remediation77 and appeals 

process, and comments by other proponents for 

retail investors.

Issues related to broker misconduct are the 

frequent subject of complaints that investors 

bring to the attention of SEC Ombudsman Tracey 

McNeil. Thus, our advocacy in this area will be led 

by Ombudsman McNeil and her staff, who expect 

to continue dialogue with FINRA during Fiscal 

Year 2020.
REPORT ON OBJECTIVES: FISCAL YEAR 2020 | 13

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 selfregulatory 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.78

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).79 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 

June 30 Report on Objectives will describe the 

Ombudsman’s activities during the first six months 

of the current fiscal year and provide the Ombudsman’s objectives and outlook for the following full 

fiscal year. The Ombudsman’s Report included in 

the Investor Advocate’s December 31 Report on 

Activities will provide a look back on the Ombudsman’s activities during the full preceding fiscal year.

Accordingly, this Ombudsman’s Report provides 

a look back on the Ombudsman’s activities for 

the six month period of October 1, 2018 through 

March 31, 2019 (Reporting Period) and discusses 

the Ombudsman’s objectives and outlook for Fiscal 

Year 2020, beginning October 1, 2019.

SERVICE BY THE NUMBERS

The Ombudsman80 assists retail investors—

sometimes referred to as individual investors or 

Main Street investors—and other persons with 

concerns or complaints about the SEC or SROs 

the SEC oversees. The assistance the Ombudsman 

provides includes, but is 

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.
14 | 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. 

At times, individuals request the Ombudsman’s 

assistance with things the Ombudsman does not 

do. For example, individuals may ask us to 

provide financial or legal advice, participate in 

a formal investigation, make binding decisions 

or legal determinations for the SEC, or overturn 

decisions of existing dispute resolution or 

appellate bodies.

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, as well as all related correspondence 

and communications to and from Ombudsman 

staff. We track the status of the inquiry from its 

receipt to its ultimate resolution or referral, and 

we monitor the amount of staff engagement and 

resources that were utilized to respond to the 

inquiry. We maintain these types of records in order 

to identify and respond to problems raised, analyze 

inquiry volume and trends, and 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 creates a matter. When a matter 

is created, the Ombudsman reviews the facts, 

circumstances, and concerns, and assesses the 

staff engagement and resources that may be 

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

Once a matter is created, it may generate subsequent 

contacts—related inquiries and communications to 

or from the Ombudsman staff deriving from the 

matter. These contacts often require further attention 

to answer additional investor questions, explain or 

clarify proposed resolution options, discuss issues 

with appropriate SEC or SRO staff, 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 759 matters covering 10 primary 

issue categories (Figure 1).

Non-SEC / Other Matters (197)

SEC Questions / Complaints (189)

Allegations of Securities Law Violations / Fraud (136)

Securities Ownership (83)

Investment Products / Retirement Accounts (45)

SEC Investigation / Litigation / Enforcement Actions (41)

Securities Laws / Rules / Regulations / Procedures (30)

Atypical Matters (18)

Company Disclosures and Information (16)

FINRA Arbitration / Rules / Procedures (4)

Figure 1: Matters by Primary Issue Category 

October 1, 2018–March 31, 2019

26%

18%

6%

11%

1%

2%

5%

25%

2%

4%
REPORT ON OBJECTIVES: FISCAL YEAR 2020 | 15

In addition to the 759 matters received, we fielded 

1,136 contacts covering 10 primary issue categories 

during the Reporting Period, for a total of 1,895 

contacts. The chart that follows (Figure 2) displays 

the distribution of the 1,895 total contacts by 

primary issue category.

29%

17%

6%

10%

2%

5%

23%

2%

4%

2%

Non-SEC / Other Matters (542)

SEC Questions / Complaints (442)

Allegations of Securities Law Violations / Fraud (329)

Securities Ownership (182)

Investment Products / Retirement Accounts (105)

SEC Investigation / Litigation / Enforcement Actions (103)

Securities Laws / Rules / Regulations / Procedures (67)

Company Disclosures and Information (46)

FINRA Arbitration / Rules / Procedures (41)

Atypical Matters (38)

Figure 2: Contacts by Primary Issue Category

October 1, 2018–March 31, 2019

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, as necessary, 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 quantify 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 

problems and concerns investors bring to the 

Ombudsman are those where the investors are 

unfamiliar with the existing channels established 

to resolve the particular concerns they raise, 

unsure which resolution channel to use, or unable 

to get the specific outcome they want through the 

resolution channels available. 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 want a particular outcome or 

believe that the Ombudsman is permitted to do 

whatever they request can be challenging to assist. 

The Ombudsman routinely receives requests 

from investors who want the Ombudsman to, for 

example, automatically grant them SEC whistleblower status and provide monetary awards, 

reveal confidential information relating to SEC 
16 | OFFICE OF THE INVESTOR ADVOCATE

investigations, stop a publicly traded company 

from taking certain corporate actions, prosecute a 

particular broker or investment adviser, overturn an 

arbitration decision, or fire specific SEC or FINRA 

personnel. At times, they resist the Ombudsman’s 

efforts to engage in a productive dialogue and 

conclude that the only acceptable outcome is the 

particular outcome they want.

The vignettes that follow are provided to give 

a sense of the variety of issues the Ombudsman 

addresses. Together, they offer a closer look at how 

the Ombudsman’s time, effort, and commitment 

provide a meaningful service to investors and 

other interested persons, and illustrate the value 

of the day-to-day work more effectively than the 

data alone.

Numerous investors contacted the Ombudsman from late December 2018 through late January 2019 while 

the SEC was closed due to the partial federal government shutdown. Although the Ombudsman was unable

to respond to general investor questions and routine matters during that time, all investor inquiries were 

monitored on a regular basis. Many of these investors submitted questions and concerns relating to potential

advance fee fraud schemes during the shutdown. Because of the limited SEC staff available and the timesensitive nature of this type of fraud, the Ombudsman personally responded to each of these investors. On

elderly investor told the Ombudsman that he received a phone call informing him that he was owed close 

to $100,000 under a fraud claim “processed” by the SEC. The investor was instructed by the fraudster to

call another number with a DC area code to claim the money. The second fraudster informed the investor

that his claim funds would be released to him after he submitted thousands of dollars in “legal fees.” The

investor shared with the Ombudsman that he was defrauded years before and was concerned that this was 

yet another scam. The Ombudsman agreed that his concerns were valid, provided him with information on

how to recognize advance fee frauds and imposters, recommended that he cease communicating with the 

fraudsters, and assured him that Ombudsman staff would follow up with him once the SEC reopened. After

the SEC reopened, we exchanged several calls and emails with the investor and recommended that he also 

submit his complaint directly to the Division of Enforcement. The investor thanked us for helping him better

understand advance fee frauds and avoid this scam

During the Reporting Period, a number of retail investors contacted the Ombudsman to complain about how 

the Division of Enforcement handled certain statements made on social media relating to a publicly traded 

company’s business and financial outlook. These investors alleged that the SEC was harming, rather than

protecting, investors, and they feared that the SEC’s actions would negatively impact the value of their shares

They also requested a wide range of assistance from the Ombudsman, from nonpublic SEC information relating to the company to demands that the Ombudsman stop the Division of Enforcement from pursuing the 

matter. With each investor, the Ombudsman staff answered general questions, discussed salient aspects of

the information available to the public, and directed the investors to the appropriate Division of Enforcement 

resources for further information and updates

An investor told the Ombudsman that she had been trying to reach a live person at the SEC for two weeks 

via phone and email to report misconduct on the part of her investment adviser. The investor complained that

the difficulty she had with reaching a live person made her feel like no one at the SEC cared about her issue

Moreover, while she understood that she might not ever recover the money she lost, she at least wanted to 

formally file a complaint with the SEC in the hopes of warning other investors about the investment adviser’s 

misconduct. Ombudsman staff provided her with additional information, discussed her various options, and

gave her the contact information for the appropriate SEC offices. Although the Ombudsman was not the

appropriate resource to pursue her misconduct claim, the investor was still grateful that the Ombudsman 

took the time to call her back, listen to her concerns, and provide her with additional resources
REPORT ON OBJECTIVES: FISCAL YEAR 2020 | 17

An investor contacted the Ombudsman with questions about his personal investment losses. The investor

also wanted his name added to the list of harmed investors eligible for a Fair Fund distribution. After Ombudsman staff advised the investor to contact the appropriate SEC office, he called back weeks later stating that

he followed those directions but had not yet received a response. Ombudsman staff was able to research and

confirm for the investor that the appropriate SEC office received his request, and advised the investor to call 

the Ombudsman back if he did not receive the follow up information he needed. During the next week, the

Ombudsman confirmed that the investor was contacted by SEC staff to follow up on his request

Our interactions with investors provide insight 

into the information investors rely upon and the 

assistance they want when making investment 

decisions. When our interactions with investors 

highlight their lack of information or gaps in their 

understanding, we attempt to deliver personalized, 

straightforward service by communicating the 

information necessary to help investors better 

understand the solutions the SEC can provide, by 

liaising with the appropriate persons and entities, 

and by empowering and equipping investors to 

make well-informed decisions.

STREAMLINED COMMUNICATIONS 

WITH RETAIL INVESTORS

The Ombudsman Matter Management System 

(OMMS) is an electronic platform for receiving 

inquiries, as well as tracking and analyzing matter 

and contact information, while ensuring all 

necessary data management, confidentiality, and 

reporting requirements are met. The OMMS Form, 

a web-based, mobile friendly form permitting the 

submission of inquiries, complaints, and documents 

directly to the Ombudsman, guides the submitter 

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 submitters to easily 

upload and submit related documents for staff 

review. For any persons who do not wish, or are 

unable, to use the OMMS Form, they may still 

contact the Ombudsman by email, telephone, 

fax, and mail.

When an OMMS Form is submitted, OMMS 

automatically creates a matter record. The 

Ombudsman also manually creates an OMMS 

matter record for each inquiry received by 

telephone, email, or other means outside of the 

OMMS Form. Once an OMMS matter record 

is created, the Ombudsman and staff can review 

the matter details, track all related contacts and 

correspondence, update matter comments, and 

communicate with the investor via the OMMS 

platform. OMMS also allows the Ombudsman 

and staff to search and analyze matters and 

contacts by submitter, primary issue, fiscal year, and 

a number of other categories, and review data and 

customize specific reports when a deeper examination is required.

The Ombudsman also worked with the SEC Office 

of Public Affairs (OPA) during the Reporting 

Period to create a stronger public presence on 

the SEC’s www.sec.gov home page and on the 

SEC’s social media channels to better inform the 

public about the role of the Ombudsman and the 

resources the Ombudsman provides. For example, 

a button linking to the sec.com/Ombudsman web 

page and OMMS Form is available on the sec.

gov homepage. Another web-based effort, “Q&A 

with the SEC Ombudsman,” now available on the 

Ombudsman web page, was featured as an SEC 

Spotlight topic on the www.sec.gov home page for 

several weeks, and was posted on the SEC News 

Twitter account.
18 | OFFICE OF THE INVESTOR ADVOCATE

As a result of our ongoing efforts to streamline 

and enhance communications with retail investors, 

from October 1, 2018 through March 31, 2019, 

we received 412 new matters submitted via the 

OMMS Form, representing 55 percent of the 

754 new matters received during this six month 

Reporting Period. As a comparison, from October 

1, 2017 through September 30, 2018, the first full 

fiscal year the OMMS Form was available to the 

public, we received 164 new matters submitted via 

the OMMS Form. The Ombudsman will continue 

to encourage persons to submit their inquiries via 

the OMMS Form, closely monitor questions and 

suggestions relating to the OMMS Form, and work 

with OIT, the technology contractor, and OPA 

to enhance the OMMS user experience and the 

Ombudsman-related information and resources 

available to the public.

The following graphic (Figure 3) illustrates the 

standard lifecycle of what happens when investors 

or other interested persons contact the Ombudsman 

for assistance: 

START

END

We review 

your information, 

determine if you are a 

retail investor and if your 

matter concerns the SEC 

or a related SRO, and 

confirm that your 

matter is entered 

in OMMS. We review 

your matter in detail, 

including any related 

background information, 

laws, and policies.

The Ombudsman 

may contact you, 

SEC staff, and other key 

persons for more details 

on the matter. The 

Ombudsman will discuss 

your concerns about 

confidentiality, if any, 

at this point.

The Ombudsman 

and staff discuss 

your matter internally

 to determine the best 

options for resolution 

and to identify other 

resources that may 

be helpful to you.

The Ombudsman 

and staff may contact 

you to gather more 

information and to 

reply to any interim 

correspondence. This 

may occur several times 

as we work to resolve 

your matter.

The Ombudsman 

resolves your matter 

or provides options for 

you to consider. You may 

be informed that your 

matter was referred 

to another SEC division 

or office for further 

assistance or 

resolution.

We update 

your matter record 

accordingly. This 

provides the Ombudsman 

with easy access to your 

matter information 

should you have 

additional questions 

or concerns.

Figure 3: What Happens When You Contact the Ombudsman
REPORT ON OBJECTIVES: FISCAL YEAR 2020 | 19

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 financial 

agencies, the Ombudsman follows three core 

standards of practice: confidentiality, impartiality, 

and independence (box below).

The Ombudsman’s Challenge

The SEC’s mission is to “protect investors, 

maintain fair, orderly, and efficient markets, and 

facilitate capital formation.”81 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 these situations, 

investors frequently assume the purpose for 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 all citizens by maintaining fair, 

orderly, and efficient capital markets.

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 .
20 | OFFICE OF THE INVESTOR ADVOCATE

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 SEC 

or SRO staff. 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.

Assisting Investors through Advocacy

Even when we cannot help investors achieve the 

specific results they desire, the concerns we hear 

from investors help to shape the policy agenda of 

the Office of the Investor Advocate. We also engage 

with those who represent investors, including law 

school investor advocacy clinics, to gain a deeper 

understanding of potential legal and structural 

barriers encountered by investors. We look for ways 

in which processes or regulations of the SEC or 

SROs could be improved for the benefit of investors, 

and we advocate for those types of reforms. 

To retail investors, FINRA is perhaps the most 

well-known SRO82 under SEC oversight. FINRA 

operates BrokerCheck83 and a dispute resolution 

forum,84 both of which are commonly used by 

retail investors. As discussed in prior reports, the 

Ombudsman closely follows FINRA’s dispute 

resolution forum activities that have a direct and 

significant impact on retail investors. Two of these 

areas of interest and importance to retail investors 

are discussed below. A third area of concern, related 

to broker migration and misconduct (known as 

“cockroaching”), is discussed in the section of this 

Report on Objectives entitled Policy Agenda for 

Fiscal Year 2020.

AREAS OF INTEREST AND 

IMPORTANCE TO RETAIL INVESTORS

FINRA Arbitration Panel Diversity 

In the Report on Activities for Fiscal Year 2018, 

we noted a 2014 study by the Public Investors 

Arbitration Bar Association (PIABA) on the lack of 

diversity among FINRA arbitrators.85 The PIABA 

study determined that approximately 80 percent 

of the arbitrators on the FINRA roster were men 

and 40 percent were over the age of 70.86 Following 

the PIABA study, FINRA announced a multi-year 

effort to improve representation among arbitrators, 

and posted survey data on its website showing the 

demographic composition of its overall arbitrator 

roster from 2015 to 2018:87
REPORT ON OBJECTIVES: FISCAL YEAR 2020 | 21

Gender

2018 Survey 2017 Survey 2016 Survey 2015 Survey

Demographic

Joined 

October 

2017-2018

Overall 

Roster

Joined 

October 

2016-2017

Overall 

Roster

Joined 

October 

2015-2016

Overall 

Roster

Joined 

October 

2014-2015

Overall 

Roster

Male 60% 70% 62% 72% 66% 74% 75% 75%

Female 37% 27% 35% 25% 33% 24% 26% 23%

Race

2018 Survey 2017 Survey 2016 Survey 2015 Survey

Demographic

Joined 

October 

2017-2018

Overall 

Roster

Joined 

October 

2016-2017

Overall 

Roster

Joined 

October 

2015-2016

Overall 

Roster

Joined 

October 

2014-2015

Overall 

Roster

Caucasian 76% 83% 69% 84% 76% 86% 79% 86%

AfricanAmerican

15% 7% 15% 6% 14% 5% 4% 4%

Hispanic 

or Latino

8% 4% 4% 4% 7% 4% 17% 4%

Asian 1% 2% 4% 2% 3% 1% 2% 1%

Multi-Racial 4% 2% 4% 2% 2% 2% 7% 2%

American Indian 

or Alaska Native

0% <1% 1% 0% 0% <1% 0% <1%

LGBT Status

2018 Survey 2017 Survey 2016 Survey 2015 Survey

Demographic

Joined 

October 

2017-2018

Overall 

Roster

Joined 

October 

2016-2017

Overall 

Roster

Joined 

October 

2015-2016

Overall 

Roster

Joined 

October 

2014-2015

Overall 

Roster

LGBT 5% 3% 2% 2% 3% 2% 3% 2%

Age

2018 Survey 2017 Survey 2016 Survey 2015 Survey

Demographic

Joined 

October 

2017-2018

Overall 

Roster

Joined 

October 

2016-2017

Overall 

Roster

Joined 

October 

2015-2016

Overall 

Roster

Joined 

October 

2014-2015

Overall 

Roster

70 or older 12% 38% 18% 39% 15% 39% 12% 37%

69 to 61 28% 26% 30% 27% 30% 31% 29% 33%

60 or younger 45% 20% 51% 29% 54% 30% 58% 29%

Note: Consulting firm AON Hewitt conducted the 2016 and 2015 surveys. The 2017 and 2018 surveys were conducted by Alight

Solutions, formerly a part of AON Hewitt. Neutral responses were completely voluntary, confidential and anonymous. In the 2015 survey

the overall response rate was 68%. In the 2016 survey, the overall response rate was 55%. In the 2017 survey, the overall response rat

was 37%. In the 2018 survey, the overall response rate was 39

Source: FINRA, Our Commitment to Achieving Arbitrator and Mediator Diversity at FINRA, available at finra.org/arbitration-andmediation/diversity-and-finra-arbitrator-recruitmen
22 | OFFICE OF THE INVESTOR ADVOCATE

According to the FINRA survey data, in 2018, 

women were 27 percent, African-Americans were 

seven percent, Hispanics or Latinos were four 

percent, Asians were two percent and members 

of the LGBT community were three percent of 

the FINRA overall arbitrator roster.88 Further, 83 

percent of arbitrators identified as Caucasian, 70 

percent of arbitrators were men, and 38 percent of 

arbitrators were 70 years of age or older.89 While 

FINRA noted that increased percentages of women, 

Hispanic and Latino, and LGBT arbitrators joined 

its overall arbitrator roster in 2018,90 further 

improvement across all of the categories should 

remain a priority. As an example, in 2015, we note 

that women represented 23 percent of the overall 

arbitrator roster, and in 2018, that percentage rose 

to 27 percent. However, the increased percentage 

of women on the overall roster from 2015 through 

2018, while encouraging, is significantly less than 

the estimated 46 percent of women that comprised 

the U.S. retail investor population back in 2016.91

Although the numbers and percentages may 

fluctuate over time, we encourage FINRA to 

aim for diversity on its overall arbitrator roster 

that better reflects the diversity of the U.S. retail 

investor population.

FINRA acknowledges that increasing both the 

number of arbitrators and the diversity of its overall 

arbitrator roster is a long-term effort, and it has 

taken many steps to do so, including broadening its 

outreach to diverse organizations,92 expanding its 

recruitment staff, and leveraging the use of social 

media.93 We agree with FINRA that “providing 

a diverse pool of arbitrators from which parties 

can choose” is important, and we support and 

encourage their efforts to recruit new arbitrators 

from “diverse backgrounds, professions, and 

geographical locations”94 as they work to make 

overall improvements to their arbitrator recruitment 

and selection processes. 

In late 2018, the importance of diversity in the 

arbitration process was further thrust into the 

mainstream by a notable arbitration case in a 

separate forum.95 Some of the issues raised by that 

case relating to minority underrepresentation in 

arbitrator pools may also prove relevant to the 

FINRA arbitrator selection process,96 including 

the level of effectiveness of algorithmic tools used 

to generate random pools of arbitrators for a 

given case, and the impact on the fairness of the 

arbitration process—real and perceived—when 

the arbitrator selection pool lacks diversity.97 As 

a related matter, we also understand the importance of addressing issues that may discourage the 

selection of diverse arbitrators new to the FINRA 

roster. To the extent that arbitrator selection may 

be influenced by the number or amount of prior 

awards, or years of service,98 or by the algorithmic 

pool selection process, newer additions to the roster 

may be less likely to be selected. FINRA may wish 

to consider additional steps to overcome issues in 

the arbitrator selection process which may operate 

to reduce the likelihood that parties select new 

arbitrators to hear their matters. While expanding 

the diversity of the arbitrator pool is a positive 

step forward, progress may be undermined if new, 

diverse arbitrators are sidelined disproportionately 

during the selection process.

Financial Technology Innovation

On July 30, 2018, FINRA issued a special notice 

seeking comment on how it can support innovation 

in financial technology (“Fintech”) consistent 

with its mission of investor protection and market 

integrity.99 On September 18, 2018, FINRA 

announced the release of an additional report on 

regulatory technology (“Regtech”) focused on 

developments in the securities industry with implications for broker-dealers.100 Most recently, on April 

24, 2019, FINRA announced the formation of an 

Office of Financial Innovation to improve collaboration within FINRA and between FINRA and 

various external stakeholders (including industry 

participants, regulators, and investors) on “issues 

related to significant financial innovations by 

FINRA member firms.”101
REPORT ON OBJECTIVES: FISCAL YEAR 2020 | 23

While FINRA’s Fintech and Regtech initiatives are 

in the early stages, we are encouraged by the possibility for innovation which improves the experiences 

of and outcomes for retail investors. During Fiscal 

Year 2020, we will monitor rulemaking activities 

related to Fintech and Regtech for their impact on 

retail investors and, in particular, how they affect 

the nature, frequency, and resolution of disputes 

between customers, and brokers-dealers.

Funding for New and Existing Investor 

Advocacy Clinics

As discussed more fully in the Report on Activities 

for Fiscal Year 2018, investor advocacy clinics102

were established as a result of concerns expressed 

to then-SEC Chairman Arthur Levitt by small 

investors at SEC town hall meetings.103 In response, 

Chairman Levitt announced in 1997 the start of 

pilot clinics at two New York-area law schools to 

assist investors with small claims who had difficulty obtaining legal representation for arbitration 

proceedings.104 Over the next fifteen years, several 

clinics were launched at law schools across the 

country, with many receiving funding from state 

securities fraud enforcement cases105 and state 

securities commissions.

From 2009 to 2012, the FINRA Investor Education 

Foundation (Foundation) provided an additional 

source of funding in the form of clinic start-up grants 

of $250,000 each awarded to eight law schools.107

While the Foundation start-up grants were adequate 

to launch these clinics, it was anticipated that the 

additional funds needed for the clinics to sustain 

their operations beyond the three year grant period 

would be secured from other funding sources or 

from the respective law schools. No Foundation 

funds were awarded to investor advocacy clinics 

after 2012,108 and several clinics unable to secure 

additional funding were forced to shut down.

As of March 31, 2019, only fifteen investor 

advocacy clinics remained in operation across 

the United States—in California, the District of 

Columbia, Florida, Georgia, Illinois, Nevada, 

New Jersey, New York, and Pennsylvania.109

While funding remains a serious challenge, these 

remaining clinics continue to provide essential 

no-cost legal representation and resources to eligible 

retail investors of limited means (some clinics set 

client income and asset guidelines) and with smaller 

claims (usually less than $100,000) who are unable 

to afford or retain legal counsel.110

In addition to representing their retail investor 

clients during the arbitration process, the clinics 

also conduct outreach to retail investors in their 

local communities. These outreach efforts cover a 

range of important topics, including questions to 

ask before investing, how to learn more about a 

financial professional, and tips to spot and avoid 

scams—particularly those scams aimed at specific 

communities such as immigrants, veterans, and 

senior investors. When a clinic is forced to turn 

away clients, curtail its outreach efforts, or in 

many cases, shut down due to a lack of funding, 
24 | OFFICE OF THE INVESTOR ADVOCATE

WA

OR

ID

MT

WY

ND

SD

NE

UT

NM

TX

OK

KS

LA

MS AL

TN

KY

AR

MO

IA

MN

WI

MI

IN

OH

WV

VA

NC

MD

DE

DE

NJ

NY

PA

DC

NV IL

CA

GA

FL

DE

MA

NH

VT ME

SC

CO

AZ

AK

HI

Figure 4: Investor Advocacy Clinic Locations (as of March 31, 2019)

the resulting loss is significant for retail investors, 

given the small number and location of clinics in 

operation (Figure 4).

The significance of access to affordable representation and the services provided by investor 

advocacy clinics should not be understated. For 

example, most broker-dealer customer account 

agreements contain arbitration clauses. When 

opening an account, customers are typically 

required to consent to arbitration as a forum 

for resolving any disputes that may arise. While 

arbitration is often viewed as a simpler alternative 

to litigation, it can place unsophisticated pro se

investors at a severe disadvantage against experienced opposing counsel representing broker-dealer 

firms. As a result, most retail investors face lower 

success rates and receive smaller award amounts 

when they represent themselves in arbitration 

disputes.111 Higher success rates are usually achieved 

by retail investors when they are represented by 

legal counsel.112

As discussed more fully in the Report on Activities 

for Fiscal Year 2018, in March 2018, the SEC 

Investor Advisory Committee (IAC) recommended 

that the Commission explore short-term and 

long-term solutions to the funding crisis confronting 

law school investor advocacy clinics.113 In the short 

term, the IAC recommended that the Commission 

work with FINRA to provide continued funding of 

existing clinics, potentially through the use of fines 

and penalties levied by FINRA. The IAC also recommended that the Commission work with the North 

American Securities Administrators Association, Inc. 

(NASAA) and others to identify potential funding 

sources. As a longer term effort, the IAC encouraged 

the Commission to request legislation from Congress 

to consider permanently funding law school investor 

advocacy clinics, possibly via a matching grant 

program through the SEC Investor Protection Fund 

modeled after a similar program initiated by the IRS 

Office of the Taxpayer Advocate.

In January 2019, FINRA released a final status 

report from its Dispute Resolution Task Force 

which addressed a number of recommendations 

under consideration for final action by FINRA, 

including a recommendation to consider funding 

law school investor advocacy clinics through 
REPORT ON OBJECTIVES: FISCAL YEAR 2020 | 25

FINRA fines and penalties.114 The report noted that 

the recommendation was not implemented, and 

that beginning with its 2018 fiscal year, FINRA fine 

monies are authorized for use for only four 

specific purposes: 

(1) capital/initiatives or nonrecurring 

strategic expenditures that promote 

more effective and efficient regulatory 

oversight by FINRA (including leveraging technology and data in a secure 

manner) or that enable improved compliance by member firms; (2) activities 

to educate investors, promote compliance by member firms through education, compliance resources or similar 

projects, or ensure our employees are 

highly trained in the markets, products, 

and businesses we regulate; (3) capital/

initiatives required by new legal, regulatory, or audit requirements; and (4) 

replenishing reserves in years where 

such reserves drop below levels reasonably appropriate to preserve FINRA’s 

long-term ability to fund its regulatory 

obligations.115

Investor advocacy clinics need and deserve predictable and dependable sources of funding. These 

clinics help level the playing field when retail 

investors find themselves the victims of financial 

losses or fraud with limited, or no, representation 

options available to them in the arbitration forum. 

The failure to prioritize funding for the creation and 

preservation of investor advocacy clinics severely 

underestimates the important services they provide, 

including representing retail investors with small 

claims, providing community-level outreach and 

education to vulnerable and underserved communities, and benefitting FINRA and the industry by 

screening out nonviable claims and explaining to 

investors why their claims may lack merit.116 As such, 

the Ombudsman fully supported, and continues to 

fully support, the March 2018 IAC recommendation 

that the Commission work with FINRA to provide 

funding for law school clinics possibly through the 

use of FINRA fines and penalties, work with NASAA 

and others to identify potential funding sources at 

the state and local levels, and request legislation from 

Congress to permanently fund investor advocacy 

clinics.117

LAW SCHOOL CLINIC 

OUTREACH PROGRAM

Our Law School Clinic Outreach Program (LSCOP) 

continued to expand during the Reporting Period. 

As discussed in prior Ombudsman’s Reports, 

LSCOP was created to complement our Office’s 

statutory mandate and core functions, foster 

connections with investor advocacy clinics at law 

schools across the country, and benefit law student 

clinic participants and the investing public.

Investor advocacy clinic directors and law students 

are front line champions of investor protection, 

and are uniquely positioned to gather and convey 

information to our Office about the real world 

concerns of Main Street investors. Given their 

ability to advocate for and represent the financial 

interests of retail investors in ways that the SEC 

cannot, the clinics also provide the Ombudsman 

and the Investor Advocate with pertinent feedback 

on the issues their clients face in light of existing and 

proposed SEC rulemakings and policies.

LSCOP affords clinic directors and law students 

the opportunity to hear from and work with 

OIAD and SEC staff directly through three main 

methods: on-site clinic and law school visits by the 

Ombudsman, clinic and law school visits hosted at 

SEC headquarters, and ongoing communications 

with the clinic directors. This Reporting Period 

included all of these methods, as the Ombudsman 

continued to cultivate relationships with the clinic 

directors, field insightful questions and perspectives 

from the law students on innovative approaches 

to retail investor concerns, and gather input aimed 

at ameliorating common problems experienced by 

their clients.118
26 | OFFICE OF THE INVESTOR ADVOCATE

On-Site Visits

During this Reporting Period, the Ombudsman 

made an on-site visit to Georgia State University 

College of Law to attend the final student presentations for its inaugural Legal Analytics course. The 

course, co-taught by the Investor Advocacy Clinic 

Director, consisted of students from the law school, 

several of whom were enrolled in the Investor 

Advocacy Clinic, and the business school. The 

students used analytics to find patterns and extract 

insights from the text of approximately 55,000 

FINRA arbitration awards, and then used that 

data to explore and present several research topics, 

including, for example, the impact of factors such 

as hearing location, arbitrator panel composition, 

and the number of previous FINRA appearances on 

arbitration win rates. 

Hosted Visits

During the Reporting Period, the Ombudsman 

hosted a professor and students from the George 

Washington University Law School Securities Law 

seminar. During the morning, the students discussed 

topics of interest with Commissioner Peirce, a senior 

advisor to Chairman Clayton, a senior counsel to 

then-Commissioner Stein, the Investor Advocate 

and Ombudsman, and senior counsels from the 

Division of Investment Management, Division of 

Corporation Finance, and Office of International 

Affairs. The robust discussions covered a wide 

range of topics, from Commission regulatory 

priorities and initial coin offerings (ICOs), to SEC 

career paths and unique job opportunities. That 

afternoon, the Ombudsman accompanied the 

professor and students to the SEC Proxy Process 

Roundtable event. While George Washington 

University Law School, like most law schools, does 

not have an established clinic, we hope that LSCOP 

and our interest in supporting the important work 

of investor advocacy clinics will lend support to 

law schools considering establishing and funding 

investor advocacy clinics.

Communications with Investor Advocacy 

Clinic Directors 

During the Reporting Period, the Ombudsman 

planned the first ever SEC Investor Advocacy Clinic 

Summit (Summit) to bring the investor advocacy 

clinics together at SEC headquarters to share their 

perspectives on issues facing retail investors. While 

the investor advocacy clinic directors periodically 

convene, and some clinic directors and students 

visit the SEC from time to time, the Summit would 

be the first event of its kind, providing the existing 

clinic directors and students the opportunity to 

gather in person to discuss issues of importance 

with each other and with SEC staff.

The preparations for the Summit began in 

November 2018. As part of these preparations, the 

Ombudsman conducted exploratory meetings with 

her staff and with the Investor Advocate to assess 

the feasibility of such a large-scale event. Based on 

these discussions, the Ombudsman determined that 

her small staff could meet the logistical challenges of 

the proposed event. Subsequently, the Ombudsman 

staff contacted the investor advocacy clinic directors 

in early December 2018 to request feedback on 

their interest in the Summit, proposed discussion 

topics, and the anticipated student participation.

Unfortunately, the SEC was forced to cease routine 

operations for approximately five weeks from late 

December 2018 to late January 2019 due to the 

partial federal government shutdown.119 During this 

period, the Ombudsman and her staff were unable 

to work on Summit planning matters. When the 

SEC resumed full operations in late January 2019, 

the Ombudsman and staff returned to enthusiastic expressions of interest.120 After reviewing the 

feedback from the clinic directors, it was determined 

that the Summit would be held on April 4, 2019.

With approximately 40 business days remaining 

prior to the Summit, the Ombudsman and her 

small staff prepared intensively for the event. 
REPORT ON OBJECTIVES: FISCAL YEAR 2020 | 27

During that time, the Summit grew to include 

nearly 100 expected attendees, speakers, and 

participants, including ten investor advocacy clinic 

directors and over 50 law students. Scheduled 

speakers and breakout session facilitators included 

two SEC Commissioners; the Investor Advocate, 

Ombudsman, and senior counsels from OIAD; and 

senior counsels from the Division of Enforcement, 

Division of Corporation Finance, Division of 

Investment Management, and Division of Trading 

and Markets. In addition, invited featured speakers 

included senior leaders from FINRA and NASAA.

The Summit was successfully convened on April 4, 

2019 after the conclusion of this Reporting Period. 

We will discuss the Summit in greater detail in the 

Ombudsman’s Report included in the Report on 

Activities for Fiscal Year 2019. 

OBJECTIVES AND OUTLOOK 

During the Reporting Period, retail investors 

continued to raise questions and complaints that 

highlighted a fundamental lack of understanding 

about how the SEC protects investors. The 

Ombudsman will continue to examine the various 

ways the SEC communicates with the investing 

public to identify areas for improvement. The 

Ombudsman will also continue to work with SEC 

divisions and offices to identify places where our 

messaging and processes that significantly impact 

retail investors may be refined and improved. Given 

some recent concerns and complaints raised by 

retail investors, one area of focus will likely be the 

SEC Fair Fund process, including how and what the 

SEC communicates to retail investors awaiting Fair 

Fund distributions. 

To focus our efforts and staff resources properly, 

the Ombudsman will continue to track matter 

and contact data, identify trends, and conduct 

detailed research and analysis. The Ombudsman 

anticipates OMMS will help identify additional 

areas of concern to investors and permit more 

targeted research and analysis in this regard. The 

Ombudsman will also continue to explore ways 

to leverage technology to maximize our reach to 

investors across the country, including the use of 

web chats, videoconferencing, and social media.

Finally, the Ombudsman looks to Fiscal Year 2020 

as an opportunity to continue to strengthen relationships with law school investor advocacy clinics 

and other organizations focused on retail investor 

concerns. Investor advocacy clinics remain eager to 

identify areas in which retail investors could potentially benefit from rulemaking and policy changes, 

and to offer feedback and practical solutions. The 

Ombudsman will continue to seek opportunities to 

engage with the clinics and solicit their perspectives. 

Most importantly, the Ombudsman will continue 

to foster an environment for the voices of retail 

investors to be heard and considered as a vital 

part of the work of the agency. I look forward to 

providing updates on our activities and progress in 

these areas in my next report.

Tracey L. McNeil

Ombudsman

REPORT ON OBJECTIVES: FISCAL YEAR 2020 | 29

SUMMARY OF INVESTOR ADVISORY 

COMMITTEE RECOMMENDATIONS AND 

SEC RESPONSES

Congress established the Investor Advisory 

Committee (IAC) 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.121 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.122

Exchange Act Section 39 authorizes the Committee to submit findings and recommendations for 

review and consideration by the Commission.123

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.124

While the Commission must respond to the IAC’s 

recommendations, it is under no obligation to agree 

with or act upon the recommendations.125

In each of our reports to Congress, the Office of 

the Investor Advocate summarizes the IAC recommendations and the SEC’s responses to them.126

We continue to report on recommendations until 

we believe the Commission’s response is final. 

For summaries of Commission activities related 

to previous IAC recommendations, 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.127

Therefore, any such initiatives are not reflected in 

this Report.
30 | OFFICE OF THE INVESTOR ADVOCATE

Topic Date IAC Recommendation SEC Response

Human Capital 

Management (HCM) 

Disclosure128

March 28, 2019 Recognize the significance of 

HCM and incorporate it as a part 

of the Commission’s Disclosure 

Effectiveness Review and the 

Commission’s approach to 

modernizing corporate reporting 

and disclosure, including 

augmenting current disclosure 

requirements regarding (1) the 

number of people employed; 

(2) competitive conditions; and 

(3) how human capital within a 

firm is being incentivized and 

managed .

Pending .

Proposed Regulation 

Best Interest, Form 

CRS, and IA Fiduciary 

Guidance . 129

Follows a 

recommendation 

of Nov . 22, 2013, 

on Broker-Dealer 

Fiduciary Duty .130

Nov . 7, 2018 Clarify the standards of conduct 

for broker-dealers and investment 

advisers with regard to the 

obligation to act in customers’ 

best interests; expand the best 

interest obligation to cover 

rollovers and recommendations 

regarding account types; 

explicitly characterize the best 

interest standard as a fiduciary 

duty; conduct usability testing 

of the proposed Form CRS and, 

if necessary, revise the proposed 

disclosures .

On June 5, 2019, the Commission 

adopted a package of rules and 

interpretations that would, among 

other things, establish a new standard 

of conduct for broker-dealers (which 

would extend to recommendations 

involving rollovers and account 

types), clarify the existing standard 

of conduct of investment advisers, 

interpret the broker-dealer exclusion 

from the definition of investment 

adviser, and require broker-dealers 

and investment advisers to provide 

a brief relationship summary to retail 

investors .

Transaction Fee Pilot 

for NMS Stocks131

Sept . 13, 2018 Adopt a proposed Transaction 

Fee Pilot with the following 

conditions: (1) include a “no 

rebate” bucket; (2) permit 

companies to opt out of the pilot; 

and (3) consider consolidating 

Test Groups 1 and 2 .

On Dec . 19, 2018, the SEC announced 

that it had voted to adopt new Rule 

610T of Regulation NMS to conduct a 

Transaction Fee Pilot in NMS stocks .

132

On March 28, 2019, following a 

lawsuit filed by several exchanges, 

the SEC issued an order staying the 

rule and pilot program pending final 

resolution of the petitions .133

Financial Support 

for Law School 

Clinics that Support 

Investors134

March 8, 2018 Explore ways to improve external 

funding sources to the law school 

investor advocacy clinics . Work 

with FINRA, NASAA, and other 

potential partners, and request 

legislation from Congress to 

consider permanent funding .

Pending .
REPORT ON OBJECTIVES: FISCAL YEAR 2020 | 31

Topic Date IAC Recommendation SEC Response

Dual Class and 

Other Entrenching 

Governance 

Structures in Public 

Companies135

March 8, 2018 The SEC Division of Corporation 

Finance should encourage 

companies to improve the 

disclosure of risks related to dual 

class structures and commence 

a pilot program to monitor 

shareholder disputes and to 

determine if enhanced disclosure 

requirements are necessary .

Pending . 

Mutual Fund Cost 

Disclosure136

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 .

On June 4, 2018, the SEC issued 

a request for comment seeking 

input from individual investors and 

other interested parties on how 

to enhance the delivery, design, 

and content of fund disclosures, 

including shareholder reports and 

prospectuses .137 The request for 

comment solicits investor feedback 

on, among other things, fund 

fees and expenses, and includes 

questions related to the IAC 

recommendation (e .g ., dollar vs . 

percentage disclosure, disclosure 

within account statements, etc .) .138

Accredited Investor 

Definition139

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 .

Impartiality in 

the Disclosure of 

Preliminary Voting 

Results140

Oct . 9, 2014 Ensure impartiality in the 

disclosure of preliminary voting 

results .

Pending .

Universal Proxy 

Ballots141

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 .

142
32 | OFFICE OF THE INVESTOR ADVOCATE
REPORT ON OBJECTIVES: FISCAL YEAR 2020 | 33

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

(B)(i).

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

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

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

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

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

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

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

11 Exchange Act § 39, 15 U.S.C. § 78pp.

12 Exchange Act § 39(b)(1)(A), 15 U.S.C. § 78pp(b)

(1)(A).

13 See Securities Act of 1933 §§ 7, 10 and 19(a), 15 U.S.C. 

§§ 77g(a)(10), 77j and 77s(a); Exchange Act §§ 3(b), 

12, 13, 14, 15(d) and 23(a), 15 U.S.C. §§ 78c(b), 78l, 

78m(a), 78n(a), 78o(d) and 78w(a).

14 See Joel Seligman, The Historical Need for a 

Mandatory Corporate Disclosure System, 9 J. CORP. 

L. 1, 24 (1983).

15 Securities Act of 1933, § 2(b), 15 U.S.C. § 77b(b); 

Exchange Act § 23(a)(2), 15 U.S.C. § 78w(a)(2).

16 See William Hinman, Director, Division of Corporation 

Finance, SEC, Keynote Address at the PLI’s 

Seventeenth Annual Institute on Securities Regulation 

in Europe (Feb. 1, 2018), https://www.sec.gov/news/

speech/speech-hinman-020118.

17 See Disclosure Update and Simplification, Securities 

Act Release No. 10532, 83 Fed. Reg. 50,148 (Oct. 4, 

2018).

18 See TSC Industries, Inc. v. Northway, Inc., 426 U.S. 

438 (1976).

19 See SEC, Recommendation of the Investor Advisory 

Committee Regarding Human Capital Management 

Disclosure (Mar. 28, 2019), https://www.sec.gov/

spotlight/investor-advisory-committee-2012/humancapital-disclosure-recommendation.pdf.

20 See Center for Political Accountability, The 2018 

CPA-Zicklin Index of Corporate Political Disclosure 

and Accountability (Oct. 2, 2018), available at https://

politicalaccountability.net/index. From page 13: “294 

S&P 500 companies disclosed some or all of their 

election-related spending, or prohibited such spending 

in 2018, compared with 295 for 2017. When these 

numbers are broken down further, 232 companies 

disclosed some or all election-related spending in 2018, 

compared to 236 such companies in 2017.” See also

Lucian A. Bebchuk et al., The Untenable Case for 

Keeping Investors in the Dark (Feb. 2019), available 

at https://ssrn.com/abstract=3281791 (arguing that 

voluntary disclosures have limitations and cannot be 

relied on to provide public-company investors with 

information about corporate political spending).

21 See Asjylyn Loder, Funds Don’t Always Vote for 

Policies They Publicly Back, THE WALL ST. J. (Apr. 2, 

2019), https://www.wsj.com/articles/funds-dont-alwaysvote-for-policies-they-publicly-back-11554206401

(citing Morningstar). 

22 See Testimony Before the Financial Servs. and 

General Government Subcomm. of the S. Comm. on 

Appropriations, 116th Cong. (May 8, 2018) (testimony 

of Jay Clayton, Chairman, SEC), https://www.sec.

gov/news/testimony/testimony-financial-servicesand-general-government-subcommittee-us-senatecommittee.

23 See Business and Financial Disclosure Required by 

Regulation S-K, Exchange Act Release No. 77599, 

81 Fed. Reg. 23,915 (Apr. 22, 2016).

24 See Request for Comment on Possible Changes to 

Industry Guide 3 (Statistical Disclosure by Bank 

Holding Companies), Securities Act Release No. 

10321, Exchange Act Release No. 10321, 82 Fed. Reg. 

12,757 (Mar. 7, 2017). 

25 See Amendments to the Accelerated Filer and Large 

Accelerated Filer Definitions, Exchange Act Release 

No. 85814 (May 9, 2019), https://www.sec.gov/rules/

proposed/2019/34-85814.pdf. 

26 See Amendments to Financial Disclosures about 

Acquired and Disposed Businesses, Securities Act 

Release No. 10635, Exchange Act Release No. 

85765 (May 3, 2019), https://www.sec.gov/rules/

proposed/2019/33-10635.pdf. See also Request for 

Comment on the Effectiveness of Financial Disclosures 

About Entities Other Than the Registrant, Securities 

Act Release No. 9929, Exchange Act Release No. 

75985, 80 Fed. Reg. 59,083 (Oct. 1, 2015).

27 See Financial Disclosures About Guarantors and Issuers 

of Guaranteed Securities and Affiliates Whose Securities 

Collateralize a Registrant’s Securities, Securities Act 

Release No. 10526, Exchange Act Release No. 83701, 

83 Fed. Reg. 49,630 (Oct. 2, 2018). 

28 See Solicitations of Interest Prior to a Registered Public 

Offering, Securities Act Release No. 10607, 84 Fed. 

Reg. 6,713 (Feb. 28, 2019).

29 See id. 

30 See Webcast: Roundtable on the Proxy Process (Nov. 

15, 2018) (on file with the SEC), https://www.sec.

gov/video/webcast-archive-player.shtml?document_

id=111518roundtable.
34 | OFFICE OF THE INVESTOR ADVOCATE

31 See Jay Clayton, Chairman, SEC, SEC Rulemaking 

Over the Past Year, the Road Ahead and Challenges 

Posed by Brexit, LIBOR Transition and Cybersecurity 

Risks (Dec. 6, 2018), https://www.sec.gov/news/speech/

speech-clayton-120618. 

32 See supra note 22.

33 See Rick A. Fleming, Investor Advocate, SEC, 

Important Issues for Investors in 2019 (Apr. 8, 2019), 

https://www.sec.gov/news/speech/fleming-importantissues-investors-2019.

34 See generally Concept Release on Equity Market 

Structure, Exchange Act Release No. 61358, 75 Fed. 

Reg. 3,594 (Jan. 21, 2010).

35 See Regulation of NMS Stock Alternative Trading 

Systems, Exchange Act Release No. 83663, 83 Fed. 

Reg. 38,768 (Aug. 7, 2018). See also 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-advocate-commentletter-regulation-ats.pdf. 

36 See Disclosure of Order Handling Information, 

Exchange Act Release No. 84528, 83 Fed. Reg. 58,338 

(Nov. 19, 2018). 

37 See Jay Clayton, Chairman, and Brett Redfearn, 

Director, Division of Trading and Markets, SEC, 

Remarks at Gabelli School of Business, Fordham 

University: Equity Market Structure 2019: Looking 

Back & Moving Forward (Mar. 8, 2019), https://www.

sec.gov/news/speech/clayton-redfearn-equity-marketstructure-2019. 

38 See SEC, Press Release, SEC Seeks Public Comment 

on Transfer Agent Rules, 2015-288 (Dec. 22, 2015), 

https://www.sec.gov/news/pressrelease/2015-288.html. 

39 See Transaction Fee Pilot for NMS Stocks, Exchange 

Act Release No. 84875, 84 Fed. Reg. 5,202 (Feb. 20, 

2018). 

40 See SEC, Recommendation of the Investor Advisory 

Committee in support of the Transaction Fee Pilot 

for NMS Stocks (Sept. 13, 2018), https://www.sec.

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

recommendation-transaction-fee-pilot-for-nms-stocks.

pdf.

41 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.

42 See Self-Regulatory Organizations; NASDAQ Stock 

Market LLC; Notice of Filing of Proposed Rule Change 

To Revise the Exchange’s Initial Listing Standards 

Related to Liquidity, Exchange Act Release No. 85503, 

84 Fed. Reg. 14,172 (Apr. 9, 2019).

43 Fixed income markets are typically segmented by 

sector according to the category of issuer such as 

corporate securities, mortgage related securities, 

asset-backed securities, federal agency securities, 

treasury securities, money market securities, and 

municipal securities. Certain segments of the fixed 

income market have high rates of participation 

by individual investors, while others have higher 

participation by institutional investors. Corporate 

and municipal securities, in particular, may be an 

important part of individual investors’ investment 

and retirement strategies because they may provide 

an income-producing investment. See SIFMA, Bonds 

Outstanding, https://www.sifma.org/resources/research/

fixed-income-chart/ (last visited Jun. 20, 2019). See also

Written Testimony of Randy Snook, Executive Vice 

President, Securities Industry and Financial Markets 

Association, Before the U.S. House of Representatives, 

Committee on Financial Services, Subcommittee on 

Capital Markets, Securities, and Investment: A Review 

of Fixed Income Market Structure (July 14, 2017) 

[hereinafter Testimony of Randy Snook], https://www.

sifma.org/resources/submissions/randy-snook-on-areview-of-fixed-income-market-structure/; What Are 

Corporate Bonds, SEC Office of Investor Education 

and Advocacy [hereinafter What Are Corporate 

Bonds], https://www.investor.gov/additional-resources/

news-alerts/alerts-bulletins/what-are-corporate-bonds

(last visited Apr. 18, 2019).

44 Municipal securities may be held indirectly by 

individual investors through mutual funds, money 

market funds, or closed end funds and exchange-traded 

funds (ETFs) and are a valuable source of funding for 

state and local projects that affect residents’ quality of 

life. Individuals may be exposed to corporate bonds 

through mutual funds and bond ETFs. See Federal 

Reserve Board, Financial Accounts of the United 

States: Flow of Funds, Balance Sheets, and Integrated 

Macroeconomic Accounts, Fourth Quarter 2017, 121 

tbl.L.212 (Mar. 8, 2018, 12:00 PM), https://www.

federalreserve.gov/releases/z1/20180308/z1.pdf. See 

also Testimony of Randy Snook, supra note 43, at 4; 

What Are Corporate Bonds, supra note 43.

45 See SEC, Fixed Income Market Structure Advisory 

Committee, Preliminary Recommendation for a Pilot 

Program to Study the Market Implications of Changing 

the Reporting Regime for Block-Size Trades in 

Corporate Bonds (2018), https://www.sec.gov/spotlight/

fixed-income-advisory-committee/transparencysubcommittee-preliminary-recommendationfimsa-040918.pdf. See also Webcast: Meeting of 

the SEC Fixed Income Market Structure Advisory 

Committee (Apr. 9, 2018) (on file with the SEC) 

[hereinafter FIMSAC April Webcast], https://www.sec.

gov/video/webcast-archive-player.shtml?document_

id=040918fimsac.
REPORT ON OBJECTIVES: FISCAL YEAR 2020 | 35

46 FINRA, Regulatory Notice 19-12; Trade Reporting and 

Compliance Engine (TRACE) (Apr. 12, 2019), https://

www.finra.org/industry/notices/19-12. 

47 SEC, Press Release, SEC Issues Agenda for Inaugural 

Meeting of Fixed Income Market Structure and 

Advisory Committee (Jan. 8, 2018), https://www.sec.

gov/news/press-release/2018-1; SEC, Fixed Income 

Market Structure Advisory Committee, Agenda 

for April 9, 2018, Meeting, https://www.sec.gov/

spotlight/fixed-income-advisory-committee/fimsacagenda-040918.htm (last visited June 4, 2018); see also

FIMSAC April Webcast, supra note 45. 

48 The Subcommittee recommended, in part, the following 

actions to correct abusive use of last-look: (1) FIMSAC 

requests that the SEC make a statement disapproving 

of the repeated use of last-look in either the municipal 

or corporate bond markets on any electronic trading 

venue; (2) the Commission should encourage FINRA 

to publish a request for comment on the use of 

last-look in the corporate bond market similar to 

the one the MSRB issued on September 7, 2018. On 

June 11, 2019, the FIMSAC voted to approve the 

recommendation. SEC, Fixed Income Market Structure 

Advisory Committee, Preliminary Recommendations 

Regarding the Use of Last-Look in the Corporate 

and Municipal Bond Markets, https://www.sec.gov/

spotlight/fixed-income-advisory-committee/technologyand-electronic-trading-subcommittee-preliminaryrecommendation-061119.pdf.

49 With respect to the first preliminary recommendation, 

the subcommittee recommended that the Commission:

consider a rule that permits a broker-dealer 

to meet the requirements of section 206(3) 

of the Advisors Act when acting in a principal 

capacity to sell certain client bond positions 

within the normal liquidated process, by 

allowing dealers to submit a “blind bid” on 

a principal basis against its advisory clients.

SEC, Fixed Income Market Structure Advisory 

Committee, Preliminary Recommendations Regarding 

Certain Principal Transactions with Advisory Clients 

Seeking to Liquidate Bond Positions, https://www.

sec.gov/spotlight/fixed-income-advisory-committee/

preliminary-recommendation-certain-principaltransactions-with-advisory-clients-2.pdf. See SEC, 

Fixed Income Market Structure Advisory Committee, 

Agenda for April 15, 2019, Meeting, https://www.sec.

gov/spotlight/fixed-income-advisory-committee/fimsacagenda-041519.htm (last visited Apr. 16, 2019).

With respect to the second preliminary recommendation, the subcommittee recommended the 

Commission:

Consider a rule that permits a broker dealer 

that negotiates and underwrites a new-issue 

 municipal bond or is a co-manager or member 
36 | OFFICE OF THE INVESTOR ADVOCATE

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

Objectives for Fiscal Year 2018 (June 29, 2017), at 

10-11, https://www.sec.gov/advocate/reportspubs/

annual-reports/sec-office-investor-advocate-report-onobjectives-fy2018.pdf.

54 See SEC, Office of the Investor Advocate, Report 

on Activities for Fiscal Year 2018 (Dec. 20, 2018) 

[hereinafter Report on Activities, Fiscal Year 2018], 

at 10-11, https://www.sec.gov/advocate/reportspubs/

annual-reports/sec-investor-advocate-report-onactivities-2018.pdf.

55 See supra note 25.

56 See Investment Company Act Rel. No. 33477 (May 20, 

2019).

57 Id.

58 See Investment Company Act Rel. No. 33440 (Apr. 8, 

2019).

59 Id., citing 15 U.S.C. §80a-6(c).

60 See supra note 58. 

61 Id.

62 See supra note 56.

63 Id.

64 Id.

65 See Stephen Deane, SEC Office of the Investor 

Advocate, How the SEC Works to Protect Senior 

Investors (May 2019), https://www.sec.gov/about/

offices/investorad/how-the-sec-works-to-protect-seniorinvestors.pdf; and Stephen Deane, SEC Office of the 

Investor Advocate, Elder Financial Exploitation: Why 

it is a concern, what regulators are doing about it, and 

looking ahead (June 2018), https://www.sec.gov/files/

elder-financial-exploitation.pdf. 

66 See Report on Activities, Fiscal Year 2018, supra note 

54, at 18. 

67 Jean Eaglesham and Rob Barry, More Than 5,000 

Stockbrokers From Expelled Firms Still Selling 

Securities, THE WALL ST. J. (Oct. 4, 2013).

68 See Mark Egan, Gregor Matvos, and Amit Seru, 

“The Market for Financial Adviser Misconduct,” 

J. POL. ECON. 127, no. 1 (Feb. 2019), 233, 

270-271, https://www.journals.uchicago.edu/doi/

pdfplus/10.1086/700735 (noting that “relative to 

other advisors who left the same firm at the same time, 

advisors who engaged in misconduct are hired by firms 

that employ a greater percentage of other advisers with 

past misconduct records”).

69 FINRA, Regulatory Notice 18-06, Membership 

Application Program (Feb. 8, 2018), http://www.finra.

org/sites/default/files/notice_doc_file_ref/RegulatoryNotice-18-06.pdf [hereinafter FINRA, Regulatory 

Notice 18-06]. The proposed amendments would 

include limitations on the ability of firms to transfer 

assets to avoid satisfaction of judgements and the 

ability of firms to expand by adding associated persons 

with certain pending arbitration claims or unpaid 

arbitration awards or settlements. The restrictions 

under Regulatory Notice 18-06 are generally subject to 

materiality consultations.

70 FINRA, Regulatory Notice 18-16, High Risk Brokers, 

(Apr. 30, 2018), http://www.finra.org/sites/default/

files/Regulatory-Notice-18-16.pdf [hereinafter FINRA, 

Regulatory Notice 18-16]. This proposed amendment 

was discussed in our Report on Activities Fiscal Year 

2017 shortly after the FINRA board authorized FINRA 

to amend its rules. See also FINRA, Regulatory Notice 

18-23, Membership Application Proceedings at 42 

(July 26, 2018), http://www.finra.org/sites/default/

files/notice_doc_file_ref/Regulatory-Notice-18-23.

pdf (noting that FINRA has refrained from setting 

additional standards “pending further development” 

related to outstanding proposals in Regulatory Notice 

18-06 and Regulatory Notice 18-16 “to strengthen 

controls on brokers with a history of past misconduct 

and to ensure greater accountability for firms that 

choose to employ high-risk brokers, and to incentivize 

payment of arbitration awards.”).

71 FINRA, Regulatory Notice 18-17, Sanctioning 

Guidelines (May 2, 2018), https://www.finra.org/sites/

default/files/Regulatory-Notice-18-17.pdf (revising 

FINRA sanction guidelines to instruct adjudicators 

to consider adverse arbitration awards or settlements 

in customer-initiated arbitrations when assessing 

sanctions).

72 See FINRA, Regulatory Notice 18-06, supra note 69; 

see also FINRA, Regulatory Notice 18-15, Heightened 

Supervision (Apr. 30, 2018), http://www.finra.org/

sites/default/files/notice_doc_file_ref/RegulatoryNotice-18-15_1.pdf (reiterating existing obligations of 

member firms to supervise associated persons with a 

history of past misconduct).

73 Under FINRA Rule 3170, a firm incurs an obligation to adopt significant monitoring measures, 

including recording of certain calls to customers, 

if the percentage of brokers hired from expelled or 

disciplined firms exceeds a certain threshold. See

http://finra.complinet.com/en/display/display_main.

html?rbid=2403&element_id=11348. The proposed 

amendment to Rule 8312 would require a firm disclose 

on BrokerCheck its status as a “taping firm.” See

FINRA, Regulatory Notice 18-16, supra note 70.

74 FINRA, Regulatory Notice 19-17; Protecting Investors 

from Misconduct (May 2, 2019), https://www.finra.

org/sites/default/files/notice_doc_file_ref/RegulatoryNotice-19-17.pdf.
REPORT ON OBJECTIVES: FISCAL YEAR 2020 | 37

75 Id. The new rule would “create a multi-step process 

to guide FINRA’s determination of whether a member 

raises investor protection concerns substantial enough 

to require it to be subject to additional obligations,” 

such as deposits of cash or qualified securities, or other 

conditions or restrictions deemed to be in the public 

interest.

76 We continue to encourage FINRA, as part of this 

proposed rulemaking or other related rulemakings, 

to expand public access to the underlying data sets, 

models, and rankings it uses to assess broker risk. 

Public availability of this information will allow 

stakeholders to independently appraise, based on their 

individual tolerance levels, the risk posed by specific 

brokers and firms. As stated in our Report on Activities 

for Fiscal Year 2018, public accessibility to risk data 

for brokers is inadequate and overdue given the 

investor-friendly resources capable of processing such 

information. See Report on Activities, Fiscal Year 2018, 

supra note 54 at 20.

77 For example, in certain circumstances, if FINRA 

determines that a member firm triggers the new 

proposed rule, it will grant that member a one-time 

opportunity to reduce its staffing levels such that it no 

longer exceeds the applicable thresholds.

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

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

80 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.

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

gov/Article/whatwedo.html.

82 There is debate whether FINRA constitutes a 

self-regulatory 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). 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. 

83 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 Nov. 

1, 2018).

84 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.

85 See Report on Activities, Fiscal Year 2018, supra note 

54, at 35.

86 PIABA, Study: Industry-Run FINRA Arbitrator Pool 

Lacks Diversity and Fails to Detect, Communicate 

Potential Biases, (Oct. 7, 2014) (noting that 

approximately 80 percent of the arbitrators in the 

FINRA pool were men and 40 percent were over the 

age of 70), available at https://piaba.org/sites/default/

files/newsroom/2014-10/The%20Importance%20

of%20Arbitrator%20Disclosure%20(October%20

7,%202014).pdf.

87 FINRA, Our Commitment to Achieving Arbitrator and 

Mediator Diversity at FINRA, available at http://www.

finra.org/arbitration-and-mediation/diversity-and-finraarbitrator-recruitment.

88 Id.

89 Id.

90 Id.

91 FINRA, Investors in the United States 2016, at 3, 

https://www.usfinancialcapability.org/downloads/

NFCS_2015_Inv_Survey_Full_Report.pdf.

92 See supra note 87. 

93 FINRA, FINRA Dispute Resolution Task Force 

Recommendations – Final Report (Jan. 15, 2019), 

available at https://www.finra.org/sites/default/files/

DR_task_report_status_011519.pdf.

94 See supra note 87.

95 See Brandon Pierson and Matthew Lewis, Jay-Z’s 

$204 million arbitration case halted over lack of 

racially diverse arbitrators, Reuters (Nov. 28, 2018), 

https://www.nbcnews.com/news/us-news/jay-z-s-204-

million-arbitration-case-halted-over-lack-n941471; 

see also Jonathan Stempel, Reuters, Jay-Z wins fight 

for African-American arbitrators in trademark case, 

Reuters (Jan. 30, 2019), https://www.reuters.com/

article/us-people-jayz-lawsuit/jay-z-wins-fight-forafrican-american-arbitrators-in-trademark-caseidUSKCN1PO32T.
38 | OFFICE OF THE INVESTOR ADVOCATE

96 See FINRA, Arbitrator Selection, https://www.finra.org/

arbitration-and-mediation/arbitrator-selection.

97 Rita Raagas De Ramos, What Jay-Z Wants, FINRA 

Insists It Already Has, FINANCIALADVISORIQ 

(Feb. 8, 2019), https://financialadvisoriq.

com/c/2196683/263053/what_wants_finra_insists_

already?referrer_module=mostPopularRead&module_

order=3.

98 See Egan, et al, Arbitration with Uninformed 

Consumers (Nat’l Bureau of Econ. Research, Working 

Paper 25150, Oct. 2018), https://www.nber.org/papers/

w25150.pdf.

99 Press Release, FINRA, FINRA Requests Comment on 

Fintech Innovation in Broker-Dealer Industry (July 30, 

2018), https://www.finra.org/newsroom/2018/finrarequests-comment-fintech-innovation-broker-dealerindustry.

100 Press Release, FINRA, FINRA Releases Report on the 

Rise of RegTech (Sept. 10, 2018), http://www.finra.

org/newsroom/2018/finra-releases-report-rise-regtech. 

This report highlighted “five areas where industry 

participants have most prominently leveraged RegTech 

innovations: Surveillance and monitoring, customer 

identification and anti-money laundering compliance, 

regulatory intelligence, reporting and risk management 

and investor risk assessment.” 

101 Press Release, FINRA, FINRA Forms Office of 

Financial Innovation, Announces Haimera Workie 

as Head (Apr. 24, 2019), https://www.finra.org/

newsroom/2019/finra-forms-office-financialinnovation-announces-haimera-workie-head.

102 As formal clinic names vary, for purposes of this 

Report, all securities law, securities arbitration, and 

investor protection focused clinics referenced herein are 

referred to as investor advocacy clinics or clinics.

103 Press Release, SEC, SEC Announces Pilot Securities 

Arbitration Clinic to Help Small Investors—Levitt 

Responds to Concerns Voiced at Town Meetings, 

97- 101 (Nov. 12, 1997), https://www.sec.gov/news/

press/pressarchive/1997/97-101.txt.

104 See id.

105 Office of the New York State Attorney General, Press 

Release, Former Telecom Executive Agrees to Turn 

Over IPO Profits (Dec. 4, 2003), https://ag.ny.gov/

press-release/former-telecom-executive-agrees-turnover-ipo-profits.

106 Press Release, University of Pittsburgh, Pitt Law School 

to Open Securities Arbitration Clinic, (May 2, 2011), 

http://www.news.pitt.edu/news/pitt-law-school-opensecurities-arbitration-clinic.

107 Press Release, FINRA Foundation Announces $1 

Million in Grants to Fund Securities Advocacy Clinics 

(Jan. 28, 2010), http://www.finra.org/newsroom/2010/

finra-foundation-announces-1-million-grants-fundsecurities-advocacy-clinics; see also Jill I. Gross, The 

Improbable Birth and Conceivable Death of the 

Securities Arbitration Clinic, 15 Cardozo J. Conflict 

Resol. 597, 604 (2014) [hereinafter Gross]. (“As a 

result of these [FINRA] grants, clinics opened at other 

law schools such as Florida International University, 

Howard University, Suffolk University, and Pepperdine 

in 2009; at Seton Hall University and University of 

Miami in 2010; and at Georgia State and Michigan 

State University in 2012.”).

108 See Gross, supra note 107, at 619.

109 As of March 31, 2019, there were fifteen clinics 

in operation: six located in New York (Benjamin 

N. Cardozo School of Law, Cornell Law School, 

Fordham University School of Law, New York Law 

School, Pace University Elisabeth Haub School of 

Law, and St. John’s University School of Law), two in 

California (Pepperdine University School of Law and 

University of San Francisco School of Law), and one 

each in the District of Columbia (Howard University 

School of Law), Florida (University of Miami School 

of Law), Georgia (Georgia State University College of 

Law), Illinois (Northwestern University Pritzker School 

of Law), Nevada (UNLV William S. Boyd School 

of Law), New Jersey (Seton Hall University School 

of Law), and Pennsylvania (University of Pittsburgh 

School of Law). In May 2019, the Georgia State 

University College of Law Investor Advocacy Clinic 

ceased operations.

110 As another aspect of client eligibility, clinics may 

also give preference to senior citizens. 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. 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. See Letter from Nicole G. Iannarone 

Director, Investor Advocacy Clinic, Georgia State 

University College of Law, et al. to FINRA (June 19, 

2017), at 2, https://www.finra.org/sites/default/files/

notice_comment_file_ref/SN-32117_GSU_comment.

pdf [hereinafter Iannarone Letter].

111 See Gross, supra note 107, at 600-01.

112 See id. at 600.
REPORT ON OBJECTIVES: FISCAL YEAR 2020 | 39

113 In June 2017, 13 investor advocacy clinic directors 

submitted a joint letter to the SEC containing 

recommendations for clinic funding. The directors 

recommended that fines and penalties levied by 

FINRA would be an appropriate source of continued 

funding. The directors also recommended legislation 

to secure additional or alternative funding from 

the FINRA Investor Education Foundation or a 

government grant-matching program similar to the 

successful Internal Revenue Service model used to 

fund low-income taxpayer clinics. See Iannarone 

Letter, supra note 110.

114 FINRA, FINRA Dispute Resolution Task Force 

Recommendations – Final Report (Jan. 15, 2019), 

https://www.finra.org/sites/default/files/DR_task_

report_status_011519.pdf.

115 Id.; see also FINRA, FINRA 2018 Annual Budget 

Summary, https://www.finra.org/sites/default/

files/2018_Annual_Budget_Summary.pdf; see also 

FINRA, Report on Use of 2017 Fine Monies, available 

at https://www.finra.org/about/report-use-2018-finemonies.

116 SEC, Recommendation of the Investor Advisory 

Committee: Financial Support for Law School Clinics 

that Support Investors (Mar. 8, 2018), https://www.

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

law-clinics-recommendation.pdf.

117 See SEC, Office of the Investor Advocate, Report 

on Objectives for Fiscal Year 2019, 23-29 (June 29, 

2018) [hereinafter Report on Objectives, Fiscal Year 

2019], https://www.sec.gov/advocate/reportspubs/

annual-reports/sec-office-investor-advocate-report-onobjectives-fy2019.pdf.

118 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 

consider meaningful changes to policies affecting retail 

investors, particularly those investors in vulnerable 

populations.

119 See Meghan Morris, The government shutdown hits 

the SEC starting Thursday – here’s how it’s impacted, 

Business Insider (Dec. 26, 2018), https://markets.

businessinsider.com/news/stocks/how-sec-affected-bypartial-government-shutdown-2018-12-1027832560.

120 See Rebecca Ballhaus, Kristina Peterson and Vivian 

Salama, Trump Signs Spending Bill, Ending Longest 

Government Shutdown in U.S. History, THE WALL 

ST. J. (Jan. 25, 2019), https://www.wsj.com/articles/

trump-considering-agreeing-to-sign-three-weekspending-bill-as-early-as-friday-11548439078.

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

122 Id.

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

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

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

126 According to Exchange Act § 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.” Exchange Act § 4(g)(6)(B)(ii), 

15 U.S.C. § 78d(g)(6)(B)(ii).

127 17 C.F.R. §§ 200.735-3(b)(2)(i), 230.122 (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).

128 SEC, Recommendation of the Investor Advisory 

Committee Regarding Human Capital Management 

Disclosure (Mar. 28, 2019), https://www.sec.gov/

spotlight/investor-advisory-committee-2012/humancapital-disclosure-recommendation.pdf.

129 SEC, Recommendation of the Investor Advisory 

Committee Regarding Proposed Regulation Best 

Interest, Form CRS, and Investment Advisers Act 

Fiduciary Guidance (Nov. 7, 2018), https://www.

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

recommendation-on-proposed-reg-bi.pdf.

130 SEC, Recommendation of the Investor Advisory 

Committee: Broker-Dealer Fiduciary Duty 

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

investor-advisory-committee-2012/fiduciary-dutyrecommendation-2013.pdf.

131 SEC, Recommendation of the Investor Advisory 

Committee in Support of the Transaction Fee Pilot 

for NMS Stocks (Sept. 13, 2018), https://www.sec.

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

recommendation-transaction-fee-pilot-for-nms-stocks.

pdf.

132 SEC, Transaction Fee Pilot for NMS Stock, Release 

No. 34-84875 (Dec. 19, 2018), https://www.sec.gov/

rules/final/2018/34-84875.pdf.
40 | OFFICE OF THE INVESTOR ADVOCATE

133 SEC, Order Issuing Stay, (March 28, 2019), https://

www.sec.gov/rules/other/2019/34-85447.pdf.

134 See supra note 111. 

135 SEC, Recommendation of the Investor Advisory 

Committee: Dual Class and Other Entrenching 

Governance Structures in Public Companies

(Mar. 8, 2018), https://www.sec.gov/spotlight/

investor-advisory-committee-2012/recommendationon-dual-class-shares.pdf. 

136 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. 

137 Request for Comment on Fund Retail Investor Experience and Disclosure, Securities Act Release No. 

10503, Exchange Act Release No. 83376, Investment 

Company Act Release No. 33113 (June 5, 2018).

138 Id.

139 See SEC, Recommendation of the Investor Advisory 

Committee: Accredited Investor Definition (Oct. 9, 

2014), https://www.sec.gov/spotlight/investor-advisorycommittee-2012/investment-advisor-accrediteddefinition.pdf. 

140 See 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/

impartiality-disclosure-prelim-voting-results.pdf. 

141 See 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/

universal-proxy-recommendation-072613.pdf. 

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

Investment Company Act Release No. 32339, 81 Fed. 

Reg. 79,122 (proposed Nov. 10, 2016).
OFFICE OF THE 

INVESTOR ADVOCATE

U.S. Securities and 

Exchange Commission

100 F Street NE

Washington, DC 20549

202.551.3302