An Introduction to the 2011 Fiduciary Forum:
SEC Commissioner Troy Paredes wrote in 2003 (as an Associate Professor of Law) about mandatory disclosure and whether market participants are subject to information overload. * Noting that mandatory disclosure may be “the most hotly contested debate in the history of securities regulation,” Paredes concluded that to the extent market participants are “subject to information overload, the model of mandatory disclosure that says more is better than less may be counterproductive.” Paredes reasoned, in part, that psychological literature suggests consumers overloaded with information make worse decisions when provided more information. He also underscores a premise of a “regulatory regime based on disclosure”: the users of the information “need to use the disclosed information effectively.”
The role of disclosure is, again, being hotly debated as the Securities & Exchange Commission, in accordance with Dodd Frank, and the Department of Labor, seeking to protect individuals’ retirement accounts, engage in rulemaking on the fiduciary standard. The Fiduciary Forum 2011, in the spirit of Commissioner Paredes’ article, seeks to provide insights from leading scholars and industry reps on this important issue.
Daylian Cain calls conflicts of interests a
“cancer on objectivity” at the 2011
Fiduciary Forum in Washington, D.C.
“Conflicts of interest are a cancer on objectivity. Even well-meaning advisors often cannot overcome a conflict and give objective advice. More worrisome, perhaps, investors usually do not sufficiently heed even the briefest, bluntest and clearest disclosure warnings of conflicts of interest.”
-Yale Management Professor Daylian Cain on what academic research reveals regarding conflicts of interests and disclosure ineffectiveness, in summarizing his presentation at the September 9th Fiduciary Forum, 2011. View Professor Cain’s video below.
Professor Daylian Cain discusses the significant psychological and practical barriers that disclosures must overcome to be effective when conflicts of interest are present. Cain summarizes the academic research and concludes, “Conflicts of interest are a cancer on objectivity. Even well-meaning advisors often cannot overcome a conflict and give objective advice. More worrisome, perhaps, investors usually do not sufficiently heed even the briefest, bluntest and clearest disclosure warnings of conflicts of interest.”
Ira Hammerman, SIFMA General Counsel and Industry Lobbyist, starts his remarks by noting, “Preservation of investor choice is at the forefront of the SIFMA position.” He explains, noting that he just received a 38 page disclosure for opening an internet banking account, that the “key question” is how to make disclosure better, and urges greater use of web-based disclosure.
Professor Arthur Laby provides a summary of the legal background of disclosure in commercial transactions and fiduciary relationships, the different rationales for disclosure, and the role of consent in disclosure. He concludes with remarks on the disclosure requirements in Dodd Frank.
David Bellaire, FSI General Counsel and Industry Lobbyist, offers general agreement with the positions of SIFMA, regarding the importance of trying to make disclosure better. Bellaire also stakes out a major part of his position on the premise that “there is no unbiased advice” because there is no “unbiased source.” As an example he claims that RIAs have “no incentive or particular requirement” to inform a prospective client that a competing RIA across town “might be able to perform better and charge a lesser fee for the service.”
Professor Cain joined the Yale School of Management after serving as Harvard’s Russell Sage Fellow of Behavioral Economics. A former Canada Science Scholar, Cain has three master’s degrees and earned his PhD at Carnegie Mellon University. Cain teaches award-winning graduate/executive-level courses such as “Business Ethics Meets Behavioral Economics” and “Negotiations: Beyond Win-Win.” Professor Cain’s research on judgment and decision-making sheds insight on to how “smart people do dumb things and good people do bad things.” Cain is a leading expert on conflicts of interest and co-editor of Cambridge Press’s Conflicts of Interest (2005).
Professor Laby teaches courses in securities regulation, business organizations, and the regulation of mutual funds. He is a recognized expert in securities law, the regulation of investment management, and fiduciary obligation. Before joining the faculty, Professor Laby served for nearly ten years on the staff of the U.S. Securities and Exchange Commission, most recently as Assistant General Counsel. Before working on the SEC staff, Professor Laby was awarded a Fulbright scholarship and was a visiting lecturer in Germany. Earlier, he was an associate at the law firm of Wilmer, Cutler & Pickering, practicing in the areas of securities regulation and commercial law.
Mr. Hammerman, prior to joining SIFMA, was a partner of Clifford Chance US LLP, the global law firm, where he specialized in securities regulatory and enforcement matters. has over twenty-five years of experience representing the financial services industry on a wide variety of matters before the US Securities and Exchange Commission, the Financial Industry Regulatory Authority, NYSE Regulation, Inc. and state regulatory authorities. In addition, Mr. Hammerman has represented public companies with respect to general corporate law, securities and transactional matters.
Mr. Bellaire has more than 18 years of broker-dealer compliance, legal, and operations experience. Most recently, he was vice president of operations and general counsel at Securities Service Network, Inc. He also previously was compliance manager and special investigations attorney with InterSecurities, Inc., assistant director of compliance at Commonwealth Financial Network, Inc. David received a B.S. in business management from Providence College and a JD from the University of Denver, Sturm College of Law.
2011 Forum Sponsors:
The Institute for the Fiduciary Standard is a recently formed think tank based in Falls Church, Virginia. The Institute formed to provide research, education and advocacy on the vital role of the fiduciary standard to investor protection, market integrity and capital formation.
The Heartland Institute is a free market think tank with offices in Chicago, Washington, DC, Austin, TX, Columbus, Ohio, and Tallahassee, FL. Its mission is to discover, develop, and promote free market solutions that empower people while shrinking the size and scope of government.
TD Ameritrade Institutional is a provider of comprehensive brokerage and custody services to over 4,000 independent Registered Investment Advisors. The firm offers operational solutions, technology, practice management and flexible investment solutions.