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News January 31, 2011 Issue

SEC Says Investors Need One-stop Research Platform

In the cavalcade of Dodd-Frank mandated studies tumbling out of the SEC these days, one is a little more straightforward than others.

Dodd-Frank Act Section 919B required the SEC to look at how investors currently get information about investment professionals, what information investors may be missing, and make recommendations for improving that information-gathering process going forward.

Any recommendations must be implemented by rulemaking within 18 months.

On Thursday, the SEC released its study, which found the following:

Investors shouldn’t have to search twice – once through FINRA’s BrokerCheck, and then again through the SEC’s Investment Adviser Public Disclosure (IAPD) system – to find information about their investment professionals.

Recommendation: give investors access to all the data whichever system they use to search, receiving "unified search results."

The SEC noted that a single database would ultimately be preferable. The "practical difficulties" involved however, including the relatively short 18-month window for implementation, "militate toward a near-term recommendation that would involve less structural change," said the staff.

It would be helpful if investors could look up financial professionals by location, whether that’s close to home, or close to Aunt Millie’s house.

Recommendation: make the databases searchable by zip code or other location indicators.

Some problems may need to be addressed here, said the staff. Prominent disclaimers will be required to avoid the appearance of the endorsement of advisers or brokers in a given location. Search results would also be susceptible to "data scraping," a process used by marketers to collect data displayed on a computer screen for repackaging and sale. However, the staff noted that "widely used" technologies and protocols exist that prevent these and other unauthorized acquisitions of information. These challenges are not insurmountable, said the staff, concluding that location searching should be implemented.

Investors still need help navigating the territory of the investing world.

Recommendation: add educational links in the BrokerCheck and IAPD search engines, including bubbles, pop-ups or other kinds of "hover" text that appear as the investor’s cursor glides over a word or concept.

Use the glossaries that accompany both search engines as a starting place, said the staff. That would capture not only investing terms, such as "investment-related," "discretionary authority," and "wrap fee program," but also regulatory and legal terms, such as "notice filing," "judgment," and "lien."

After the 18-month implementation period for the study’s recommendations, the SEC suggested further study and analysis should be conducted to determine

  • whether BrokerCheck can or should be expanded to include more CRD information in a more user-friendly format; and
  • whether IAPD content can or should be expanded and presented in a more user-friendly format.

Summary data for advisory firms, hyperlinks between CRD and SEC file numbers, or to additional information related to a particular CRD number elsewhere in BrokerCheck or IAPD are all potential considerations.