A few days ago, the SEC’s Investor Advisory Committee convened at Georgia State University’s law school.  They took testimony from the AARP about how to structure disclosures about financial professionals for use with retail customers.  Retirement security will be a bigger and bigger issue as more and more Baby Boomers enter retirement.

The AARP pointed out that effective disclosure needs to be short, simple, and clear:

We believe that the current four page relationship is too long, technical, and therefore too onerous for the average investor and household to process. The text of the relationship summary should be simply written and should avoid technical terms like “fiduciary” and “asset‐based fee” unless such complex terms are clearly defined. Behavioral science has shown that when faced with a complicated choice, people often simplify by focusing on only two or three aspects of the decision. The less they are able to frame the decision in narrow terms, the more likely they will end up overwhelmed, undecided or procrastinating. As with other disclosure statements, it is best if key information can be included on one page – additional secondary information can be attached as supplemental information. A good disclosure statement will highlight the information most important to the consumer.

As the SEC thinks about…

A few weeks ago, President Trump tweeted that he was “looking forward” to seeing the Labor Department’s employment report.  I put together an op-ed for The Hill arguing that this type of executive action forces the market to closely watch his Twitter feed because it sets a precedent that it may reveal significant clues about economic information before the official release.  The sudden change may impact overall confidence.  If the President selectively discloses economic information through Twitter, it raises concern that there might be selective disclosures through other channels:

Trump’s leaky administration and sudden decision to disseminate market-moving information through Twitter may cause many to fear that confidential economic information may be selectively released by the administration.

If investors fear that the president’s favored few have more information, they may hesitate to take the other side of trades or discount the amount they are willing to pay to account for the risk. Ordinary investors may not get fair value for their savings when they need to sell.

Some may discount these concerns as mere hand-wringing by pointing to numbers indicating strong job growth. Although those numbers matter, they cannot capture the value of investor confidence in our system’s integrity and

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Although lawyers (and other professionals) are not baseball players, some clients may benefit by looking at outcome statistics when making decisions about who to hire for a particular job.  Still, it’s tough to figure out the right statistics to use.  What counts as a “win” may not always be clear.  A defense lawyer that “loses” on liability but “wins” with a small damages award probably has a happy client.  In a couple of op-eds, I’ve suggested that immigration court outcomes might be a useful place to start.  A recent news story has me thinking about the issue again.

Publishing outcome statistics by attorney might help asylum seekers that now bet their lives on particular attorneys.  The real question is whether they should know how different counsel might affect the odds. We’ve already got stats for the judges.  And outcomes vary dramatically by presiding judge.  For example, immigrants pressing asylum claims in recent years before Los Angeles’s Immigration Court Judge Lorraine J. Munoz had 97.1% of their claims denied.  In contrast, asylum seekers fare better before Los Angeles Immigration Court Judge Stephen L. Sholomson, winning 78.2% of their asylum claims.  

But we don’t have ready access to the stats…

Deal Structure, a new paper by Cathy Hwang and Matthew Jennejohn, explains how sophisticated parties now structure increasingly complex contracts to achieve contracting’s various goals.  The article does an excellent job of explaining how today’s corporate contracts differ from the relatively straightforward contracts encountered in most contracts casebooks. 

Hwang and Jennejohn explain that parties may be able to structure their deals to nudge courts toward adopting a preferred interpretative approach. Courts facing lengthy, complex contracts must decide whether they want to adopt a textual or contextual approach.  Prior research has noted that when parties use standards, they nudge a court toward contextualism—looking outside of the four corners of the contract for interpretive clues. In contrast, rules signal to courts to use a textual approach to interpretation. That pairing—of standards with contextualism and rules with textualism—allows Hwang and Jennejohn to make a further argument: that for this pairing to work, parties need to pay attention to how they structure the provisions within their complex agreements.  For instance, if parties intend to circumscribe judicial intervention in an issue with a rule-like provision, they must take care to isolate that provision from others in the agreement using a modular design.  In …

The current Department of Labor has shown little interest in continuing to defend its fiduciary rule after the Fifth Circuit struck it down.  The AARP and three different state attorney generals recently sought to intervene to request review by the entire Fifth Circuit.  The AARP has a substantial interest in the rule.  It argues that “the panel’s decision also presents an exceptionally important issue because it robs workers, retirees, and their families of crucial protections for their retirement investments.” 

Even though the SEC recently launched its investment-advice initiative by proposing  regulation Best Interest, Labor’s rule remains critical.  Insurance pitchmen now characterize themselves as “financial advisers” and sell a variety of insurance products.  In many instances, these “financial advisers” sell annuities or whole life insurance to people with little need for the products, causing them to miss out on substantial gains over time.   Without the Labor rule, there may be few restraints on improper insurance sales.

Yesterday, the SEC announced three different proposals related to financial advice for retail customers.  The SEC’s press release summarized the proposals:

Under proposed Regulation Best Interest, a broker-dealer would be required to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer.  Regulation Best Interest is designed to make it clear that a broker-dealer may not put its financial interests ahead of the interests of a retail customer in making recommendations.

In addition to the proposed enhancements to the standard of conduct for broker-dealers in Regulation Best Interest, the Commission proposed an interpretation to reaffirm and, in some cases, clarify the Commission’s views of the fiduciary duty that investment advisers owe to their clients.  By highlighting principles relevant to the fiduciary duty, investment advisers and their clients would have greater clarity about advisers’ legal obligations.

Next, the Commission proposed to help address investor confusion about the nature of their relationships with investment professionals through a new short-form disclosure document — a customer or client relationship summary.  Form CRS would provide retail investors with simple, easy-to-understand information about the nature of their relationship with their

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One new book worth picking up is David Webber’s The Rise of the Working-Class Shareholder: Labor’s Last Best Weapon.  When I heard this book was coming out, I jumped to order it immediately. David Webber is a uniquely talented writer. In the book, he takes the stories of ordinary workers and labor activists and uses them to help explain sophisticated corporate governance concepts. Along the way, he keeps his objectivity intact and resists the urge to mythologize the gritty labor activists that help him present key concepts. For example, he writes that one: “was no saint. He was highly confrontational and abrasive, with a tendency to overplay his hand. I don’t write about him to hold him up as a paragon. I write about him because he . . . punched [his] way to a new set of tactics that must be refined and widely adopted if labor is going to reassert itself in the twenty-first century.”

The balance he brings in his portrayal of labor leaders continues with his discussion of key legal concepts. You’ll find yourself appreciating how much a nuanced understanding of ERISA can improve options. Although it’s nearly impossible to make ERISA engaging, Webber’s writing holds…