SEC chairman Jay Clayton testifies during a hearing of the House Financial Services Committee’s subcommittee on Investor Protection, Entrepreneurship, and Capital Markets on June 25.
Brendan Smialowski-Pool/Getty Images
Many investments available to mom-and-pop investors aren’t appropriate for that audience to buy, and should instead be held by sophisticated investors, the head of the SEC said Tuesday.
“There are just a number of products that aren’t appropriate for most retail investors,” Jay Clayton, chairman of the Securities and Exchange Commission, said in a virtual keynote address at the CNBC Financial Advisor Summit, a day-long roundtable for financial advisors.
The agency head didn’t offer many specifics, but cited investments with high leverage and embedded options contracts as ones that long-term everyday investors — those saving for retirement or college, for example — shouldn’t touch without detailed consultations with financial advisors.
“To the extent its short-term, flavor-of-the-day, flavor-of-the-month type things, those things make me nervous,” Clayton added.
The costs of such investments would likely erode the benefits, and financial advisors should only recommend them in “idiosyncratic circumstances,” he said.
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New SEC rules, called Regulation Best Interest, that took effect earlier this year are meant to raise the standards of conduct for brokers who make investment recommendations to clients.
Such rules will help protect the 50 million American households invested in capital markets, as well as future investors, Clayton said.
Consumer advocates believe the rules don’t significantly alter the broker-client relationship and allow them and their firms leeway to recommend high-cost investments.
