ABOUT THIS REPORT AND DISCLAIMER

Agency decision

Ask Donna

What actually matters in this document.

Text

FISCAL YEAR 2023

Report on

Activities

ABOUT THIS REPORT AND DISCLAIMER

Section 4(g)(6) of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. § 78d(g)(6), 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 The two reports

are the mid-year Report on Objectives covering the forthcoming Fiscal Year and the end-of-year Report on

Activities covering the preceding Fiscal Year.

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 A Report on Activities is due no later than December

31 of each year.3 The Report on Activities describes the activities of the Investor Advocate during the

immediately preceding Fiscal Year.

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

Activities is provided directly to Congress without any prior review or comment from the Commission,

any Commissioner, any other officer or employee of the Commission outside of the Office of the Investor

Advocate or the Office of Management and Budget. This Report on Activities 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 this Report on Activities and all

analyses, findings, and conclusions contained herein.

CONTENTS

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

FISCAL YEAR 2023 SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

INVESTOR ENGAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

RESEARCH AND INVESTOR TESTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

ADVOCACY FOR INVESTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

OMBUDS’ REPORT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

END NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46

REPORT ON ACTIVITIES: FISCAL YEAR 2023

“

As innovation in financial

products and services continues to

accelerate, we believe our approaches to

investor protection will also need to innovate

in order to keep pace.”

MESSAGE FROM THE

INVESTOR ADVOCATE

IN MY FIRST MESSAGE AS INVESTOR

ADVOCATE in June of this year, I highlighted my

priorities for the Office of the Investor Advocate

(OIAD):

Improve our service to retail investors seeking

assistance;

Increase our engagements with investors and

their representatives; and

§ Enhance our research to identify evidence-based

insights about retail investors.

The purpose of each of these goals is to better

perform the functions that Congress has assigned

to OIAD, and ultimately, to better serve the

investing public.

In this Report on Activities on Fiscal Year 2023, I

would like to update you on our progress on these

priorities, as well as share some of what we have

learned through this past year.

SERVICE TO INVESTORS

The most important function of the Office of

the Ombuds is to address problems that retail

investors may have with the Securities and

Exchange Commission or with the self-regulatory

organizations that the Commission oversees. In

2023, we managed 2,605 matters and responded

to 2,828 additional contacts through the Ombuds’

Office. This represents a greater than 500%

increase in matters initiated by investors, and a

more than 1,000% increase in contacts since the

establishment of the Ombuds’ Office in 2015.

Separately, in the past fiscal year, the Investor

Advocate received almost 900 investor inquiries

which were responded to by staff.

As surprising as the growth may appear, it is

important to note that these numbers do not

represent a spike in inquiries and complaints.

They represent a

continuous progression

in communications

from individuals who

are seeking assistance

on a variety of issues

over the last nine fiscal

years. We observe that

the number of investor

communications with the

Office of the Ombuds has

increased over the same

time period that there has been a rapid growth in

new investors, new products, and new investing

platforms. We believe that, as the number of

retail investors continues to grow, along with the

number and complexity of investment products

and strategies available to retail investors, so will

the demand for services from the Ombuds continue

to grow. More importantly, the expanding retail

investment landscape is also increasing the need for

improved communications between regulators and

the public.

REPORT ON ACTIVITIES: FISCAL YEAR 2023

ENGAGEMENTS WITH INVESTORS

To effectively perform its functions, the Office of

the Investor Advocate actively seeks input from

a broad variety of investors. In Fiscal Year 2023,

we doubled the number of investor engagement

activities that we hosted or substantially

participated in, compared to the prior fiscal year.

These engagements were designed to obtain

feedback from investors, their representatives, and

associated stakeholders on policy-related topics.

Our report details some of our most productive

engagements, and we intend in Fiscal Year 2024

to expand our in-person meetings with the public.

In particular, we hope to continue our successful

partnership with federal and state regulators in

efforts to hear from retail investors about their

investment experiences.

RESEARCH ABOUT INVESTORS

In Fiscal Year 2023, the Office of the Investor

Advocate initiated and completed two significant

research projects: one to study registered

index-linked annuities (RILAs), and investors’

understanding of these complex products, and

another to evaluate mandatory arbitration clauses

in investment advisory agreements. Our purpose

in pursuing these and other research projects is

to inform our policy recommendations whenever

possible by providing objective, evidence-based

insights about investors. As a result of our research

in Fiscal Year 2023, we have included in this

report several recommendations that our research

indicates would benefit retail investors.

To summarize our findings and recommendations

with regard to RILAs, we rarely have examined

a more complex retail investment product.

Congruent with the complexity of the product,

we believe an enormous level of effort on the part

of providers, regulators, and investors is needed

to ensure RILAs are purchased by investors

who can benefit from them. More broadly, we

are concerned that the Commission’s historical

approach to disclosures may prove insufficient,

not just for RILAs, but for many highly complex

financial products. As innovation in financial

products and services continues to accelerate, we

believe our approaches to investor protection will

also need to innovate in order to keep pace.

With regard to mandatory arbitration clauses, we

are concerned that a number of characteristics of

these clauses in advisory agreements are not in the

best interest of retail investors. We make a number

of recommendations to help promote a fairer, more

balanced framework for arbitrations between

advisers and their retail clients. In light of our

concerns, we also strongly encourage investors to

learn about the differences between arbitration and

litigation, and to ask appropriate questions of their

advisers where mandatory arbitration clauses are

included in advisory agreements.

The Office of the Investor Advocate takes seriously

the role it has been given in promoting the interests

of investors, and we are grateful for the privilege

of serving the investing public. As we approach the

tenth anniversary of the establishment of the Office

in 2024, we look ahead to further improving the

value of our contributions to the Commission and

to the service we provide investors.

Respectfully Submitted,

CRISTINA BEGOÑA MARTIN FIRVIDA

Investor Advocate

O F F I C E O F T H E I N V E S T O R A D V O C AT E

FISCAL YEAR 2023

SUMMARY

142

ENGAGEMENT

ACTIVITIES

DATA

COLLECTION

ACTIVITIES completed

127

RULEMAKINGS and SRO FILINGS

reviewed

873

INVESTOR

INQUIRIES

2,605

INVESTOR SUBMISSIONS

to the Ombuds

REPORT ON ACTIVITIES: FISCAL YEAR 2023

INVESTOR

ENGAGEMENT

THE OFFICE OF THE INVESTOR

ADVOCATE OIAD is statutorily mandated to

assist retail investors, identify problems that

investors may have, analyze the potential impacts

on investors of rules or regulations, and make

proposals to the Commission to promote the

interests of investors.4 OIAD’s direct engagement

with investors and their representatives support

each of these mandates.

In Fiscal Year 2023, OIAD hosted or participated

substantially in 142 investor engagement activities

(Figure 1) designed to obtain feedback from retail

investors on policy-related topics, and engaged

with a variety of investors to help ensure their

interests were represented across the Securities

and Exchange Commission (SEC or Commission).

OIAD has led various initiatives to engage directly

with investors and integrate their interests into all

of its functions, including:

Meeting regularly with consumer and investor

advocacy groups where retail investors are a

main focus area;

Keynoting the North American Securities

Administrators Association’s (NASAA) Senior

Issues Committee annual conference, and

meeting with older investor advocates at the

state level;

Facilitating a meeting with the Investor

Advisory Committee on retail investor issues,

including with leading industry and advocacy

organizations;

O F F I C E O F T H E I N V E S T O R A D V O C AT E

Engaging and collaborating with federal

agencies, state regulators and industry partners,

and international counterparts on issues related

to investors, such as, the Consumer Financial

Protection Bureau (CFPB); the Federal Trade

Commission (FTC), the Departments of

Veterans Affairs (VA), NASAA, the Securities

Investor Protection Corporation (SIPC), and

the Canadian Investor Protection Fund (CIPF),

among others;

Hosting a large public roundtable with NASAA

and State partners to hear directly from

investors; convening discussions with Financial

Institutions Reform, Recovery and Enforcement

Act of 1989 (FIRREA) agency Ombuds to

address investor issues;5 and

FIGURE 1. Number of Engagements

142

FY 2019 FY 2020 FY 2021 FY 2022 FY 2023

§ Envisioning and initiating annual consultations

with the SEC Division of Examinations, to

include direct investor input into the Exam

Priorities for Fiscal Year 2024.

at the Joseph Maxwell Cleland Atlanta Department

of Veterans Affairs Medical Center for a panel

discussion on retail investor-related topics and

investor advocacy.

Throughout Fiscal Year 2023, OIAD actively

sought input from a broad range and variety of

investors—including individual retail investors,

smaller and regional investors groups and

advocates, public and private pension funds, and

other small and large money managers—as well

as regulatory counterparts, non-profits, academic

experts, and consumer groups.

In addition, OIAD supports the SEC Investor

Advisory Committee (IAC), and the Investor

Advocate participates in the IAC as a statutory

member.6 The IAC is one of two Commission

advisory committees. It holds public meetings to

discuss investor-related topics and is authorized

by statute to make formal recommendations to

the Commission. The IAC includes the following

four subcommittees and one working group to

help formulate its policies and recommendations:

1) Investor-as-Owner Subcommittee; 2) Investoras-Purchaser Subcommittee; 3) Market Structure

Subcommittee; 4) Disclosure Subcommittee; and

5) Access and Inclusion Working Group.

Notably, in July 2023, OIAD conducted a large

public roundtable jointly with NASAA and the

Wisconsin Department of Financial Institutions

in Madison, Wisconsin. At the roundtable

(which was also livestreamed on sec.gov)

investors, investigators, and regulators shared

their experiences of securities fraud and engaged

in discussions related to identifying fraud and

avoiding suspicious investments directly with senior

Commission staff and Commissioner Mark Uyeda.

In September 2023, OIAD joined the Secretary

of Veterans Affairs, the Honorable Denis

McDonough, and other federal financial regulators,

OIAD continues to provide broad administrative

and organizational support, and technical

assistance, upon their request, to the IAC. In Fiscal

Year 2023, this included organizing four IAC

public meetings, including the first in-person IAC

Meeting since before 2021, and facilitating six

IAC Recommendations (Figure 2).

FIGURE 2. FY2023 Investor Advisory Committee Activities

Public Meetings 4

Recommendations 6

Subcommittee and Other Meetings

134

REPORT ON ACTIVITIES: FISCAL YEAR 2023

“

POSITIER aims to provide deep insight into how

investors and other stakeholders interact with the investment

marketplace and how they are affected by SEC policy.”

RESEARCH AND

INVESTOR TESTING

THE POLICY-ORIENTED STAKEHOLDER

AND INVESTOR TESTING for Innovative

and Effective Regulation (POSITIER) initiative

was launched in 2017 to provide a toolkit to the

Commission and OIAD for understanding investors

and increasing the efficacy of policymaking

activities.7

POSITIER aims to provide deep insight into how

investors and other stakeholders interact with the

investment marketplace and how they are affected

by SEC policy. POSITIER researchers enable OIAD

and the SEC to more thoroughly:

1. “Identify areas in which investors would

benefit from changes in the regulations of the

Commission or the rules of self-regulatory

organizations”;8

2. Conduct pre-adoption testing of potential

policies, identifying areas in which investors

would benefit from changes in regulation

and allowing the Commission to “analyze

the potential impact on investors of proposed

regulations of the Commission. . . proposed

rules of self-regulatory organizations . . . and

. . . to the extent practicable, propose to the

Commission changes in the regulations”;9

3. Conduct “retrospective analysis of rules” to help

ensure that policies are working as intended;10

4. Study investor behavior and outcomes to

“identify problems that investors have with

financial service providers and investment

products”;11 and

5. Generate evidence for better organizational

management and overall efficacy, particularly

in the sense of “outcome” indicators of

performance.

To accomplish these aims, POSITIER engages in

high-quality, interdisciplinary research, focusing on

questions and outcomes that provide meaningful

impact on investors’ lives. We work on long-term

research projects of fundamental importance and

with policymakers on applied projects to affect

policies that are under consideration. In all our

endeavors, we seek to provide insight in a costeffective and rapid manner, so that insufficient time

and money are not rationales for forgoing research

and testing.

Qualitative

Quantitative

POSITIER’s productivity is exceptional. Since

POSITIER’s founding in June 2017, we have

conducted 51 survey and experimental projects,

15 qualitative data collection projects, and

several analyses of market data. Our research

has been cited in multiple rulemaking proposals,

thereby having a direct impact on the investing

public. Additionally, we have engaged in thought

REPORT ON ACTIVITIES: FISCAL YEAR 2023

leadership by disseminating our work to policy

and academic communities, increasing our impact

by encouraging others to serve the interests of

investors through advocacy, research, or direct

outreach. In Fiscal Year 2023, highlights of our

research group included:

Completion of a highly innovative and

rigorous research project on registered

index-linked annuities (RILAs) to inform a

rulemaking proposal. This project featured

a fruitful partnership with the Division of

Investment Management, leveraging the

technical knowledge of that division while

maintaining critical independence of OIAD’s

research team. The project was prompted by a

directive from Congress to engage in investor

testing in conjunction with a regulatory

proposal regarding RILAs.12 In completing

the project, POSITIER conducted formative

research to better situate investor testing,

integrating analyses of market data and

marketing materials. The project also helped

demonstrate the potential and the efficacy of

integrating independent and highly credible

rapid-cycle investor research into agency

policymaking. The report was heavily cited in

the Commission’s proposed rule.13

Final publication of our research on mutual

fund visual aids in a special issue of the

Journal of Association for Consumer

Research, which concentrated on financial

decision-making.14 This research was reviewed

in detail in OIAD’s Fiscal Year 2022 Report

on Activities.15 We believe that publication in

a highly regarded peer-reviewed journal with

broad appeal may increase the impact of this

research throughout the federal government.

Agencies working in similar consumer-facing

domains will be able to draw lessons from

this research and apply them in the context of

consumer protection, and researchers interested

in influencing policy may use the foundations

O F F I C E O F T H E I N V E S T O R A D V O C AT E

laid in this publication to undertake additional

research that benefits policymakers and

investors.

Promotion of better evidence models across

the federal government through a panel

at the 2022 Association for Public Policy

Analysis and Management (APPAM)

conference. APPAM is a premier national

conference for research on public policy with

two to three thousand attendees each year.

Our panel discussed POSITIER’s research

and strategies for using evidence to promote

informed policymaking, including lessons that

government and academic researchers can use to

improve the transmission of evidence to policy.

§ Elevation of investor-related research in

multiple communities, including through the

Boulder Summer Conference on Consumer

Financial Decision Making, the Association

for Psychological Science, and the University

of Chicago American Marketing Association’s

Marketing and Public Policy Conference. This

outreach helps us thoroughly vet our research

so that we can be confident in our findings,

promote additional inquiry on investor issues,

and aid other entities that may use our research

to help promote investor protection.

As always, there is much more that could be

done to serve the needs of investors and the

Commission. Looking forward, we will continue

to identify and analyze programs and policies

that enable the public to make better investment

decisions and reach their goals and will find

avenues for POSITIER to collaborate with SEC

staff on high-impact policy research. We will

continue to examine interactions among individual

investors, their decision context, key household

factors, and macroeconomic trends. The rest of

this year’s report on investor testing presents results

from several research projects, including insights

for investors.

RESEARCH HIGHLIGHTS FROM THIS YEAR

REGISTERED INDEX-LINKED

ANNUITIES (RILAs)

What Are RILAs and How Do They Work?

RILAs are tax-deferred retirement savings vehicles

that advertise potentially reduced market risk

relative to investing directly in financial markets.

Like many other retirement savings vehicles,

money is first added to the overall vehicle and

then the investor allocates that money to specific

investments. Unlike many other retirement

savings vehicles, because of their structure,

withdrawal penalties, and other features, RILAs

are complex, long-term, and illiquid products that

typically require investors to make a significant

number of complicated decisions with perhaps

unintuitive consequences.

Investors fund purchases of a RILA contract

through premium payments; the initial minimum

amount required to purchase a RILA varies

substantially from $10,000 to $25,000.16 Premium

payments and investment earnings are allocated

by the investor to investment options. These

investment options are shorter-term investments

that often last 1, 3 or 6 years (a period typically

referred to as the “investment term” or “term”); as

such, these investment options may not individually

last as long as the RILA contract itself. Thus, the

investor may need to pick investments several times

over the life of the contract.

Investment options track the performance of an

index (e.g., the S&P 500 PR index, which tracks

the S&P 500’s price returns but not dividends).

Investment options typically carry “insurance

features” that can protect the investor against

certain losses but may also limit investment gains.

Due to the complexity of RILA products, including

the insurance features described more fully below,

there may be hundreds of possible investment

options for an investor within a single insurance

company’s RILA contract.

RILAs are structured in two phases: (1) an

accumulation phase, during which the investor puts

money into the contract and invests in one or more

investment options that track the performance of

an index, followed by (2) an annuitization phase,

during which the assets are turned into a stream of

payments to the owner or returned to the investor

in a lump sum.

Both RILA contracts and their investment options

typically have significant financial penalties for

investors that greatly limit investors’ liquidity

on the investments. Three of the most common

financial penalties are:

Surrender charges: A RILA contract can define

a “surrender charge period,” typically 6 to

9 years long. During this period, the insurer

charges high penalties for withdrawing money

from the contract; penalties typically start

around 9% to 10% and decrease over the

surrender charge period. Often the surrender

charge period is much longer than an investment

option’s term, requiring investors to hold

investments for multiple investment terms to

avoid surrender charges.

Interim value adjustments and mid-term

withdrawals: These penalties occur when

money is withdrawn from an investment option

before the end of its term (either when money is

withdrawn from the contract or moved out of

an investment option to another option while

remaining in the contract). These penalties may

be substantial and cause the investor to forfeit

up to 90% of their money. Investors wanting to

avoid these penalties may need to wait several

years before changing indexes or withdrawing

their money.

REPORT ON ACTIVITIES: FISCAL YEAR 2023

§ Tax penalties: In addition to other tax

implications, tax penalties may arise when

the investor withdraws money from the RILA

contract before age 59½.17 Due to this age-based

tax penalty, a younger investor that puts money

into a RILA may need to wait many years

before accessing their money without penalty.

To avoid any penalties, an investor would

typically need to meet at least three conditions:

(1) hold the investment through the surrender

period; (2) withdraw money only at the end of

each investment option’s investment term; and

(3) hold the investment until age 59½ or later

(Figure 3). As a result, it is possible that penalty

periods may be challenging to synchronize with

a penalty-free withdrawal because, for example,

an 8-year surrender charge period might expire

in a way that does not immediately align with

money that is invested in two consecutive 6-year

investment options.

Of course, individual investors may face more

complex scenarios involving additional taxes

or withdrawal penalties, further increasing

the complexity of their choices. For example,

individual investors may need to consider factors

including the type of account in which they

hold a RILA, how it is funded, how to best deal

with rollovers, and how to deal with aligning

account withdrawals with other taxes that may

arise. There is much that investors may need to

learn and take account of in order to make these

products useful for meeting their goals, and there

FIGURE 3. Potential Fees and Charges: There are Many

Tax penalties:

In certain tax deferred

accounts if you withdraw

funds before age 59 1/2.

Interim value adjustment:

If you withdraw funds during the

term of an investment option.

Surrender charges:

If you withdraw funds

during the surrender

period.

THE PUNCHLINE

There are lots of fees, so

fee-free withdrawals can

be tricky to manage.

O F F I C E O F T H E I N V E S T O R A D V O C AT E

is much that regulators may need to study and be

aware of in order to fulfill an investor protection

mission. The bottom line is that to avoid charges

and penalties, an investor likely needs to select

and manage a RILA contract for multiple years,

requiring the investor to make many complex

decisions about investment options over the life

of the contract.

Annual fees are charged in some RILA investments,

but the practice is not as prevalent as annual fees

in the mutual fund industry, for example. As an

alternative to charging annual fees, providers will

often make money in other ways such as by earning

more on their own investments than they promise

to pay investors.

Finally, it is noteworthy that the RILA investor

is not directly invested in the index, but rather

a promise by the insurance carrier to pay at a

rate that aligns with the price gains in the index.

Because of this structure, the solvency of the carrier

may be relevant to the value of the promise.

RILA Insurance Features

RILAs offer insurance features that potentially

limit losses of an investment relative to the

underlying index. At the same time, the insurance

features also limit the potential gains. Importantly,

the insurance features generally apply not to the

contract as a whole, but only to a single investment

option for a certain number of years (that is, for

the particular investment option’s “investment

term”). Moreover, the details of these features can

change when investors keep their RILA contract

for a long time; that is, each time an investor picks

from a RILA investment menu, they may face a

different set of investment options with a different

set of insurance features. Investors facing a lack of

desirable investment options at such reinvestment

periods would need to weigh these options

against potentially large charges and penalties for

withdrawing money.

When making a purchasing decision, an investor

who believes a RILA is right for them must pick

an insurance company issuer and contract and

choose how to allocate investment dollars to

investment options within the contract. Investment

options come from a menu that specifies the

bounds on the gains and losses that are applied

to each investment option, the duration of the

investment term, and the underlying index to

which each investment option will be linked. Each

of these attributes will affect the subsequent set

of decisions the investor faces. In other words,

a certain provider may offer only select indices,

and a given index may only be associated with

a certain combination of insurance features. An

investor may have additional considerations

to factor into these decisions, such as their

expectations of when they will want to withdraw

money from the contract, as well as potentially

complex tax implications that might affect

decisions about how to fund a RILA or withdraw

money from it.

Insurance features may not provide protections

against penalties that might be applied for early

withdrawals or the other fees and penalties we

discussed above.

There are two common insurance features that

can limit the losses for an investment option, as

illustrated in Figure 4.

Floors: A floor is a maximum loss (typically

a percentage) on the investment option. For

example, a 20% floor will protect the investor

from any loss greater than 20%, but the

investor bears any losses up to 20%. A 5%

floor would provide greater protection than a

20% floor.

§ Buffers: A buffer absorbs losses on the

investment option up to a certain point. It does

not turn losses into gains. For example, with a

10% buffer, the insurance company absorbs

REPORT ON ACTIVITIES: FISCAL YEAR 2023

losses up to 10%, but the investor bears any

additional losses. In other words, if the index

decreased by 50%, a 10% buffer would reduce

the loss to 40%. Alternatively, if the index

decreased by 5%, a 10% buffer would reduce

the loss to zero. A larger buffer therefore

provides greater protection.

FIGURE 4. Examples of Buffers and Floors in

Different Negative Market Conditions

Significantly

Negative

Slightly

Negative

-10%

-5%

-15%

-20%

-5%

-15%

-20%

-30%

-40%

-50%

-60%

-40%

-50%

Index

Index Option

with 10% Buffer

Index Option

with 20% Floor

Insurance features that limit losses vary in how they

mitigate negative performance. For example, this figure

illustrates that in the case where an investor has chosen

a 10% buffer and the index decreased by 50% during

a given investment term, the investor would only lose

40%. As shown, a variety of outcomes are possible.

In general, a buffer protects the investor from

experiencing small losses for the investment option,

but it does not protect them completely against

large losses. In contrast, a floor protects an investor

from experiencing large losses but does not protect

against small losses. When deciding on floors or

buffers and picking a level of protection, some

operative questions would then seem to include:

how often do index losses exceed the buffer? And

how often does the index incur a loss that is larger

than the floor?

O F F I C E O F T H E I N V E S T O R A D V O C AT E

Insurance features can also limit gains for an

investment option:

Caps: A cap is a maximum gain (percentage) on

the investment option. It reduces the potential

gains from investing in the option compared

with investing in the components of the index

to which it is linked (such as through an

investment in an index mutual fund).

§ Triggers: A trigger fixes gains to a specific

rate so long as the index’s gain is over a

corresponding trigger “threshold.” For example,

consider an 8% trigger with a threshold of 0%.

The RILA would return 8% as long as the index

experiences any return above 0%, including

above 8%. Thus, a trigger is more valuable

when index returns are between the threshold

and the trigger percentage (in this case, between

0% and 8%). A trigger below the index returns

during the investment period is likely to limit

gains relative to the index, whereas a high

trigger could boost gains above the returns

experienced by the index.

In general, both caps and triggers limit the

returns on RILA investment options when there

are large increases in the value of the underlying

index. However, a trigger can provide higher

returns than the underlying index when index

returns are modest.

A final insurance feature may act on both gains

and losses for an investment option but may also

act on gains or losses alone:

§ Participation rates: The participation rate

acts as a multiplier on index performance. For

example, a two-sided 85% participation rate

reduces both gains and losses to 85% of the

gains or losses on the underlying index. For

example, a gain of 10% on the index would be

reduced to a gain of 8.5% with the RILA, and a

loss of 10% on the index would be reduced to a

loss of 8.5% with the RILA. A participation rate

can be over 100%, in effect creating a leveraged

investment product. An investment option with

a participation rate may also have caps or other

limits on gains.

KEY TAKEAWAYS FROM THE

RILA RESEARCH

In Fiscal Year 2023, the POSITIER team conducted

extensive research, including investor testing, to

inform the design of a new registration form for

RILA products.18 This research was conducted

in collaboration with the Division of Investment

Management. The project was prompted by a

directive from Congress19 to conduct testing to help

“ensure that a purchaser using the form receives

the information necessary to make knowledgeable

decisions”20 and supplemented that testing with

analyses of the RILA market to better understand

the products.

The POSITIER team conducted four separate,

interconnected research streams to understand

RILA products (Figure 5):

1. Analysis of the existing market for RILA

products—exploring potential investor returns

under various market scenarios—to better understand the economic features of these products.

2. Review and analysis of RILA marketing materials

to understand issuers’ perspectives on the RILA

value proposition and also to better understand

how potential investors are approached.

3. Qualitative investor testing—in the form of

1-hour one-on-one interviews with 20 annuity

owners and shoppers—to better understand

comprehension, barriers to understanding,

and reactions to initial versions of the Key

Information Table (KIT), a hypothetical

summary disclosure that contains information

about RILA contracts and their features and

risks.21 Due to the in-depth and labor-intensive

nature of this research approach, it is common

practice to conduct a relatively small number

of interviews.

4. Quantitative investor testing with thousands of

consumers to assess potential form designs and

to quantitatively assess comprehension.

Understanding the impacts of regulations on

consumers is important to designing effective

policy. Bringing insights from individuals and

households to inform policymaking discussions

requires significant technical expertise, an

infrastructure to collect and analyze data under

tight timelines, and the ability to translate research

findings to policymakers. The POSITIER team

engaged with the topic of RILAs before the

rulemaking proposal was released. This work,

FIGURE 5. RILA Research Methods (4 Methods Used)

Qualitative

Simulations

Market Analysis

Quantitative

INSIGHTS ABOUT RILAS

REPORT ON ACTIVITIES: FISCAL YEAR 2023

conducted at a much earlier stage than prior

investor testing, helped ensure that data-driven

insights informed the proposed rule.22

The research project yielded five key lessons about

RILAs of relevance to investors.

Lesson #1: Complexity and Jargon Make

RILAs Hard to Understand

RILAs are challenging for consumers to

understand. The products are complex, and the

jargon used to explain them is unfamiliar to

even the most sophisticated consumers.23 In our

qualitative and quantitative testing, we provided

consumers with hypothetical disclosure text and

assessed their understanding of RILAs. We found

that many consumers were confused by or unable

to understand key terminology, such as investment

term, interim value adjustment, and buffer.

Beyond the terminology, we found that many

interview participants struggled to understand

the details of the RILA contract presented in

the hypothetical disclosures. These difficulties

manifested both in their explanations of key

concepts and in their application of the knowledge.

INDEX

PENALTIES

INTERIM

VALUE

ADJUSTMENT

RILA

CAP

BUFFER

SURRENDER CHARGE

TRIGGER

TAX

FEES

CONTRACT

LENGTH

FLOOR

INVESTMENT TERM

O F F I C E O F T H E I N V E S T O R A D V O C AT E

In quantitative testing, we asked consumers to

answer true–false questions about the RILA

materials that were presented. Despite the

disclosures, consumers were only able to answer

58% of the questions correctly on average, which

is only slightly better than what we would expect

if the participants were randomly guessing. These

results suggest that substantial conceptual barriers

surround RILAs.

In sum, many participants remained unable to

fully understand the implications of the RILA

features and, thus, had limited ability to apply that

information in decision-making.

Lesson #2: Insurance Features Greatly

Affect How a RILA Performs and

Investors’ Chances of Losing Money

In our analysis of the RILA market, we considered

how different RILA features could have influenced

an investor’s possible investment returns in recent

history. We performed this analysis by applying

currently available investment option insurance

features to the historical returns of the indices that

RILA issuers track. Our baseline simulations used a

commonly offered investment option from the data

(a one-year investment term, an 18% cap and 10%

buffer) and our comparison options were slight

modifications from that baseline.

These simulations compared the returns from

investing in a RILA option with the returns of

the index itself in order to understand the extent

to which RILA insurance features would have

mitigated losses and capped returns during the

1990 to 2019 period. We believe this analysis could

be informative for people who are evaluating the

potential economic value of the RILAs. In turn,

more accurate assessments of economic value may

help potential investors decide if and how to invest

in a RILA.

Overall, our results suggest that the purchasers’

choices of insurance features can significantly

impact returns. Surprisingly, despite the emphasis

on the insurance features as risk mitigation devices,

during our historical simulation period, some RILA

investment options would have actually increased

risk and reduced returns versus investing directly in

the underlying index.

To illustrate the effect of insurance features on

potential returns, Figure 6 summarizes the results

of our simulations. Each panel presents the

distribution of the simulated outcomes for one

of four realistic 1-year investment term options

that an investor may encounter. Specifically, we

simulated investment returns associated with a

$10,000 investment in a given RILA investment

option that rolled over five times, for a total

investment duration of 6 years. Simulations were

repeated starting in each month from 1990 to

2013 (i.e., one simulation ran from January 1990

to January 1996, a second ran from February

1990 to February 1996, and so forth, ending

with a final simulation from January 2013 to

January 2019). In each panel, the height of each

bar represents the number of simulations that

resulted in a particular final investment balance.

Specifically, results for the RILA investment

option are shown in blue and results for the S&P

500 index are shown in yellow.

The investment options we examined in

Figure 6 were:

An 18% cap and 10% buffer (Panel A; note

that this was similar to an investment option

offered by many different issuers and was the

main case we explored in our research)

A 13.5% cap and 15% buffer (Panel B)

A 10.9% trigger and 10% buffer (Panel C)

§ A 19.5% cap and 20% floor (Panel D)

It is clear from Figure 6 that the RILA options we

examined would have reduced the potential gains

and the extent of the losses relative to the index.

At the same time, potential returns to the RILA

options differed significantly depending on the

particular insurance features. For example, in Panel

D (19.5% cap, 20% floor), the probability of losing

money would have been 37% compared to 15%

for investing directly in the index. Additionally, the

highest possible gains would have been limited.

Lesson #3: The Timing of RILA Purchases

Affect Investors’ Chances of Losing Money

Our historical simulations also highlight an

important result that may be unintuitive to

potential investors: The precise timing of

investments can have substantial impacts on how

insurance protections are triggered. While timing

is important to a certain extent in the case of

purchase and sales decisions in many investments

the issue is particularly acute for RILAs. Investment

options purchased within a RILA are associated

with a forced sale at the end of each investment

term. In other words, RILA investors experience

an adjustment in the value of their RILA holdings

at the end of each investment term; thus, even if

the underlying index is only temporarily depressed,

investors cannot wait until a market recovery to

realize gains. Put another way, although RILA

products have a long-run investment purpose and

investment options offer insurance protections on

the realization of returns at the end of a term, RILA

investors’ investment options essentially place a

bet on the realized value of the index on a specific

end-of-term day.

General market fluctuations occur constantly and

affect the value of many investment products. Yet,

because RILA investments leave investors limited

discretion over the timing of sales, timing-based

changes in value are particularly important for

these products. An investor purchasing a mutual

REPORT ON ACTIVITIES: FISCAL YEAR 2023

FIGURE 6. Comparing Alternative Investment Options

120

Panel A: 10% buffer and 18% cap

Count

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

120

Panel B: 15% buffer and 13.5% cap

Count

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

120

Panel C: 10% buffer and 10.9% trigger

(threshold 0%)

Count

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

120

Panel D: -20% floor and a cap of 19.5%

Count

$10,000

Index

$15,000

$20,000

$25,000

$30,000

$35,000

RILA

This figure displays simulated investment outcomes for different RILA investment options (as specified in each panel).

The height of each bar represents the number of simulated realizations with that particular outcome.

O F F I C E O F T H E I N V E S T O R A D V O C AT E

fund or exchange-traded fund tracking the index,

in contrast, could hold the fund for a longer period,

with the possibility of avoiding losses due to a

forced sale on a specific date.

As a comparison, the right panel of Figure 7 shows

a RILA with the same insurance features (18%

cap, 10% buffer) held for a 6-year period starting

in 1991. In this instance, at the end of 6 years,

the RILA would have underperformed the S&P

500 index due to the 18% cap, which would have

limited the returns in certain years when the index

gained value. The final investment value of the

RILA in 1997 would have been approximately

$4,000 lower than the index.

As an example, consider the investment option

from the left panel of Figure 7 (18% cap, 10%

buffer). During the period from 1999 to 2000, the

S&P 500 rose by 20%, but this RILA investment

option’s returns would have been capped at 18%;

thus, by 2000, the RILA would have slightly

trailed the index. The situation was different in the

2000 to 2002 period, when the index dropped in

value. Over that period, the RILA’s buffer would

have reduced losses, allowing its cumulative

value to exceed that of the hypothetical S&P 500

investment. By 2005, the $10,000 investment made

in this RILA investment option in 1999 would have

increased by 27% (ending at $12,730), whereas the

index lost 1.5% (ending at $9,857).

Together, the two panels of Figure 7 illustrate the fact

that the value of a RILA (and the value of a RILA

relative to its index) can vary significantly depending

on the time period during which it is chosen, even

holding constant the insurance features.

Lesson #4: Increased Comprehension Is

Possible Through Investor Testing

A quantitative test with thousands of consumers

and qualitative tests with a smaller group of

FIGURE 7. Simulated Value of a $10,000 Investment in a RILA Option Versus Direct Investment in the

Associated Index over Different Time Periods

From 1991 to 1997

From 1999 to 2005

$24

Investment Balance in Thousands

$13

$12

$11

$10

1999 2000 2001 2002 2003 2004 2005

Index

RILA

$20

$16

$12

1991

1992

Index

1993

1994

1995

1996

1997

RILA

The RILA investment option in both graphs is the same: an S&P 500 price return–linked index with an 18% cap, 10%

buffer, and a 1-year investment term. These two graphs illustrate the fact that the value of a RILA (and the value of a

RILA relative to its index) can vary significantly depending on the time period during which it is chosen, even holding

constant the insurance features.

REPORT ON ACTIVITIES: FISCAL YEAR 2023

individuals were conducted to explore how

well potential investors understand RILAs

and what changes could be made to improve

comprehension. Our investor-focused testing

research design consisted of 1-hour, one-on-one

qualitative interviews with 20 individuals from

around the country with varying levels of

experience and sophistication, which enabled

us to identify key ways that investors interact

with RILA information and to identify areas

of confusion. Using this qualitative research

as a basis, we tested various disclosures more

broadly with over 2,500 participants in a rigorous

quantitative testing study. For that quantitative

testing, we sampled a broad mix of investors who

were diverse in terms of age, gender, education,

and annuity ownership (Figure 8).

Although we generally found comprehension

to be quite low, there were some variations on

the disclosure materials that resulted in modest

increases in comprehension. Our research was

highly accelerated due to a compressed timeframe;

nevertheless, our analyses demonstrated the promise

of testing for improving disclosure while providing

practical guidance to the rulemaking team.

One focus of the rule proposal was the use of

a Key Information Table (KIT) to highlight

aspects of RILAs with which investors might be

unfamiliar. Our research design focused on two

alternative versions of the KIT: a version with

question-and-answer (Q&A) headings, and a

version with non-Q&A headings. An additional

dimension of the study tested the differential

impacts of four potential introductions to preface

the KIT: a “Benefits Only” introduction based

on our review of RILA marketing materials; a

“Key Terminology” introduction that referenced

a number of key terms used in the KIT; a

“Decision Focus” introduction that attempted

to avoid the use of jargon and layer information

to help participants unpack how a RILA works

in digestible pieces (e.g. this version covered the

purpose of a RILA before delving into more

complex details of the products); and a control

FIGURE 8. Participant Characteristics

FEMALE

62.2%

37.5%

5.2%

MALE

OTHER OR

MISSING

57.8%

42.1%

Yes

1.4% No High School Diploma

12.3% High School or Equivalent

18.2% Some College

68.1% BA or Above

OWNS ANNUITY

O F F I C E O F T H E I N V E S T O R A D V O C AT E

EDUCATION

condition that provided no introduction at

all. Thus, each participant viewed one of four

introductions and one of two KIT versions, for a

total of eight different combinations.

FIGURE 9. Summary of Average Percentage

of Questions Answered Correctly Across

Introductions

How do RILAs work?

Our quantitative study measured comprehension

across 28 questions, which could be organized

into four subscales: “How do RILAs work?”

(these questions considered the basic purpose and

structure of RILAs); “Which investors should

consider RILAs?” (these questions asked about

the potential appropriateness of a RILA in selected

investment settings); “How do upside caps and

downside protections work?” (these questions

asked about the insurance features of a RILA);

and “What happens upon withdrawal of funds?”

(these questions asked about the liquidity aspects

of RILAs, largely about how early withdrawal

penalties work).24

Control (No Introduction)

48.3

Key Terminology

48.0

Benefits Only

48.5

Decision Focus

52.9

Which investors should consider RILAs?

Control (No Introduction)

56.8

Key Terminology

55.5

Benefits Only

57.0

Decision Focus

60.1

How do upside caps and downside

protections work?

Figure 9 summarizes our quantitative study by

subscale and introduction. Average comprehension

on the “How do RILAs work?” subscale differed

across the introductions, with the Decision Focus

introduction having the highest comprehension

(Figure 9). The differences between the Decision

Focus and other introductions are all at least

marginally significant, although the magnitudes

of these differences are all modest. The “Which

investors should consider RILAs?” subscale had

differences across introductions with the Decision

Focus having the highest average performance. All

the other introductions have significantly worse

average comprehension, although the magnitudes

of these differences are modest. Performance on the

“How do upside caps and downside protections

work?” had no significant differences between

introductions. Finally, on the “What happens

upon withdrawal of funds?” subscale, average

performance differed between the Key Terminology

and the control introductions, with the Key

Terminology doing significantly worse, again, with

only a modest difference in magnitudes.

Control (No Introduction)

56.9

Key Terminology

58.4

Benefits Only

56.6

Decision Focus

56.6

What happens upon withdrawal of funds?

Control (No Introduction)

62.9

Key Terminology

61.1

Benefits Only

62.2

Decision Focus

62.7

Four introductions were developed to observe investors’

understanding of key concepts about RILAs. The first

introduction, “Control” was a control scenario, which

participants were given no information about RILAs. The

second introduction, “Key Terminology” was designed

to introduce participants to key terminology. The

third introduction “Benefits Only” described potential

benefits of owning a RILA. The fourth introduction,

“Decision Focus” reduced the use of jargon and

presented information in an order we believed to be

more meaningful to new potential investors. Within

each introduction, all participants answered questions

categorized in four separate conceptual sub-scores:

(1) How do RILAs work? (2) How do upside caps and

downside protections work? (3) Which investors should

consider RILAs? (4) What happens upon withdrawal

of funds? Numerical values represent the average

percentage of subscale questions answered correctly by

participants assigned to the given introduction condition.

REPORT ON ACTIVITIES: FISCAL YEAR 2023

FIGURE 10. Comprehension of RILAs across KIT Formats

62.3

Percent correct

57.4

50.2

57.1

57.3

62.1

56.9

48.4

How do RILAs work?

Which Investors Should

Consider RILAs?

Q&A KIT format

non-Q&A KIT format

How do upside caps and

downside protections work?

What happens upon

withdrawal of funds?

Participants were presented with one of two sets of KIT rows, with each row presented one at a time. The first set

(Q&A) framed each row title as a question, and the second set (Non-Q&A) framed each row title as a statement. All

participants answered questions categorized in four separate conceptual sub-scores: (1) How do RILAs work? (2)

Which investors should consider RILAs? (3) How do upside caps and downside protections work? (4) What happens

upon withdrawal of funds? Numerical values represent the average percentage of subscale questions answered

correctly by participants assigned to the given condition.

Average comprehension across the two KIT

formats (i.e., Q&A and non-Q&A headings),

was similar, as shown in Figure 10. However, the

Q&A format yielded greater comprehension on

the “How do RILAs work?” subscale, albeit a

quantitatively modest difference. Across the other

three subscales the KIT formats did not result in

different comprehension, Figure 10.

Our quantitative study provided additional

suggestive evidence that the jargon used in the

discussion of RILA products may also hamper

comprehension, with possible downstream

consequences on decision-making. When

comparing the comprehension questions that

included jargon versus those that did not,

participants on average answered fewer of the

jargon-laden questions correctly.

Overall, these results suggest that disclosure

materials can improve comprehension, although

modest changes were observed in this study.

O F F I C E O F T H E I N V E S T O R A D V O C AT E

Further research and study are needed to build on

these findings and develop disclosures that help

investors make decisions in line with their goals

and interests.

Lesson #5: Limited Transparency is a

Barrier to Understanding RILA Products

Although POSITIER constantly endeavors to make

disclosures more accessible to a broad range of

investors, we are mindful that different investors

and other stakeholders may have different needs

for detailed information. Our research efforts

were greatly aided by our ability to design and

run complex calculations and by having extensive

access to highly informed individuals who have

technical expertise with the products.

At the same time, our research would have

benefitted from an increase in available data on

RILA investments. We were unable to identify

and access a data source that has reliable current

and historical data on RILA product offerings,

which impaired our team’s ability to study certain

aspects of RILAs. Moreover, we were unable to

identify data that would help us assess the impact

of early withdrawals on investors or on realized

returns of actual investors. While some proprietary

data sources may provide some insights for

investors, the lack of readily available data makes

it more difficult for potential investors to properly

evaluate the benefits and costs of investing in

RILAs and to select appropriate investment

options for themselves.

Advocates and policymakers interested in the

impacts of RILAs on investors may consider

encouraging the development and maintenance of

systematic, accessible and reliable data on RILA

product offerings and usage by investors.

Concluding Thoughts on RILA

Investor Testing

RILAs are a relatively new financial innovation that

have been increasingly attracting investments since

emerging in the early 2010s.25 If used with attention

to the substantial early withdrawal penalties, the

products and some investment options may offer

a set of benefits that appeal to certain investors.

Our study provided extensive insights about these

products that may be useful to investors, regulators,

and the public. Although much more can surely

be learned and communicated about RILAs, we

believe our effort provides an enormous step

forward on a rarely studied investment product

that is expected to be increasingly sold.26

RILA products are complex and may require

considerable effort on the part of providers,

regulators, and investors to ensure they are

purchased by investors who can benefit from them,

and used in a way that realizes those benefits (for

example, for long-term retirement savings and

with careful attention to, among other things, early

withdrawal penalties, tax consequences and an

investor’s appetite to make complex investment

decisions over the life of the contract).

Our investor testing demonstrates that testing

methods can effectively examine the relationship

between disclosures and comprehension and

point to ways to improve disclosures for investor

decision-making (Lesson #4). While the proposed

RILAs registration form was diligently developed

with the aid of investor testing under tight time

constraints, we remain concerned that a significant

number of RILA investors will be unable to

make fully informed decisions related to these

products. With more time, it is possible that more

effective RILA disclosures could be developed,

communicating more useful and relevant

information for investors’ decisions. It is also

possible, however, that any retail investor-friendly

disclosure would be insufficient to capture the

inherent complexity of RILAs.

More broadly, we are concerned that the

Commission’s historical disclosure-based regulatory

regime alone may prove inadequate not just for

RILAs, but for many highly complex financial

products. As innovation in financial products and

services continues to accelerate, we grow concerned

whether the Commission’s investor protection

efforts will keep pace. Currently, a significant

portion of such efforts rely on the assumption

that full and fair disclosure by financial product

sponsors is sufficient to allow investors to make

fully informed decisions about investment products.

Given the investor testing results discussed above,

however, we believe it would be appropriate to

explore whether that assumption holds true for

highly complex financial products and whether

alternative investor protection safeguards should

be considered. We encourage our colleagues across

the Commission to entertain new, innovative,

data-driven, and investor-focused approaches

to disclosures and investor protection related to

complex financial products.

REPORT ON ACTIVITIES: FISCAL YEAR 2023

One potentially more desirable approach would

be to provide shorter, layered disclosures that

organize information in terms of decisions that an

investor needs to make or questions an investor

might plausibly have. Currently, investors receive

disclosures on many aspects of a product or service

and are expected to sift through many different

topical areas to assemble information relevant to

them for a particular decision. The situation can be

more challenging for investors who may not know

what information they need to know, as they may

have difficulties identifying and assembling the

relevant information.

Building on our RILA research, a particular avenue

for improving disclosure could involve the creation

of decision trees to help guide investors through

the many complex decisions one must make when

deciding to purchase an investment. In the case

of RILAs, an investor must answer questions

such as: Is a RILA right for me? Which insurance

carrier should I purchase from? What index

should my RILA track? What insurance features

should I select? Each of these questions is complex,

often require consideration of a set of subsidiary

questions, and may require different information

to answer.

Figure 11 provides a sketch of how such a decision

tree might work when evaluating an investment

product. This diagram is provided for illustrative

purposes only, given that each of the decision

nodes on the diagram (diamonds) may itself

involve a set of subsidiary decisions. Nevertheless,

the illustration suggests a possible sequence of

decision nodes for the purpose of discussion.

The first node asks investors to consider if this type

of product is appropriate for their goals: How does

the product work? Does it serve a purpose aligned

with the investor’s goals? Are there better options

available? These questions seem fundamental to

any investor product evaluation.

O F F I C E O F T H E I N V E S T O R A D V O C AT E

The second node asks if the product provider

is right for the investor. Does the provider offer

options that are appropriate for the investor?

Could the financial viability of the provider be an

issue? There are many factors that may go into

such a decision.

The final node asks, “Of the investment options

this provider offers, is this one the right one

for me?” This last node embodies a layer of

comparison shopping, where specific product

features are relevant.

FIGURE 11. Stylized Investor Decision Tree

Does this type of

product match my

financial goals?

Consider

other types of

investments

YES

Is this

provider right

for me?

Consider other

providers

YES

Of the

investment options

this provider offers, is this

one the right

one for me?

YES

Continue

evaluating the

investment product

Consider

different options

or products the

provider offers

Of course, this illustrative decision tree is too

generic to fully guide an investor, but it highlights

some conceptual aspects of a decision tree. A good

decision tree can produce an efficient organization

of information and may help an investor to quickly

identify if a product is not right for them.

Aside from providing a decision tool to an investor,

how could such a decision tree guide the design of

a disclosure? Standard disclosures are rarely written

with a specific decision context in mind. Often,

disclosures are structured with an assumption that

an investor has already determined that the type of

product or the provider is the right one for them—

at best, essentially assuming the investor is at the

last node of the illustrative decision tree. While the

content of disclosures may to be extremely valuable

to different types of investors, the structure of

disclosures may make the content less useful to

investors who are at different nodes in the decision

tree. A decision tree model may help issuers

organize the content of disclosures in a way that

could more effectively inform investors.

We must also acknowledge the assistance

investment professionals provide many retail

investors when making financial decisions. In

particular, investment professionals are likely

to play an important role in ensuring the

appropriateness of RILAs for investors, as RILAs

are often professionally sold products. RILAs

are frequently marketed to older investors; thus,

it is reasonable to ask whether a highly illiquid

investment is the right choice for a specific older

investor. Given the costly nature of RILA penalties

discussed above, information on how often they

are levied would provide significant insights on

how well investment professionals help investors

during the purchasing process. If RILA products

were to be recommended following proper analysis

of an investor’s situation, one would expect to find

that charges and penalties would rarely be levied

in practice (because the investor’s likelihood of

withdrawal would be thoroughly considered before

a sale was made). Data on RILA withdrawals and

household financial shocks are thus likely to be

relevant to investors, financial intermediaries, and

regulators. Unfortunately, as noted above, we lack

transparency in the RILA market, which makes it

difficult to ensure that investors are receiving the

information they need to make decisions about

these products.

Overall, we encourage the Commission to explore

new, innovative, and data-driven approaches to

investor protection related to complex financial

products and to test disclosures that better

assist investors and their decision-making. With

respect to RILAs in particular, we look forward

to analyzing public comments on the proposed

RILAs registration form, and to working with our

colleagues to help ensure that investors are enabled

to make fully informed decisions.

STOCK MARKET EXPECTATIONS

Multiple nationally representative surveys

ask investors to forecast future stock market

movements, with the goal of understanding

consumption, savings, and investment decisions.

Typically, these surveys ask individuals to report

the likelihood that the market will increase in value

(e.g., the Federal Reserve Bank of New York’s

Survey of Consumer Expectations; the University

of Michigan Health and Retirement Survey), which

may be a natural way for most people to think

about stock market movements.

In POSITIER research regarding stock

market expectations, we identify a novel and

counterintuitive effect regarding how these

expectations are elicited.27 Specifically, we show

that when individuals are asked to predict the

likelihood that the stock market will increase in

REPORT ON ACTIVITIES: FISCAL YEAR 2023

value, they provide more pessimistic forecasts than

when they are asked to make the inverse forecast

about the likelihood the market will decrease in

value. This difference implies that existing surveys

may vary in accuracy depending on how questions

are phrased, a point of crucial importance for

investors’ decision-making, since expectations are

key to economic models.

Academic research has shown that individuals’

perceptions of products as positive or negative

are generally consistent with the way product

attributes are framed. For instance, a company

with an “85% success rate” will often be perceived

more positively than one with a “15% failure

rate.”28 Thus, the finding from the forecasting

question—the probability of a stock market

increase leads to more pessimistic forecasts—is

particularly surprising.

The reverse framing effect for stock market

expectations is stable over many contexts. In

our research, we find the framing effect within

nationally representative samples, for predictions

of market performance over the next month and

over the next year, and over several months of

data collection. The difference is found when

participants read information about prior market

performance and when using additional variants on

the wording of stock market questions. However,

differences in forecasts are smaller among those

who have greater financial literacy and greater

comfort with making numerical judgments.

O F F I C E O F T H E I N V E S T O R A D V O C AT E

This research shows that investor and consumer

forecasts may be meaningfully impacted by the

way in which questions are asked. Furthermore,

because the standard framing for a forecast

question is to ask about the likelihood of market

growth, our research suggests that many elicitations of investors’ forecasts may underestimate

investors’ true beliefs about future market performance. Overly pessimistic expectations about

future stock market performance could lead

policymakers to believe a recovery from a down

market is less likely than it actually is, or it could

make policymakers less concerned about a period

of stock market growth than would otherwise

be warranted. Beliefs about stock market growth

also contribute to inflation expectations among

firm managers, with potential consequences on

the prices of goods.29

We recommend that future elicitations use a neutral

frame that simultaneously asks about the likelihood

that the market will increase and the likelihood

that the market will decrease. We believe that such

elicitations will provide more accurate information

on investors’ expectations of the stock market.

Concluding Thoughts

Serious and robust evidence on investors’ decisionmaking can have an enormous impact on policy

proposals that affect investors’ well-being. As

described above, whether investors have the information necessary to make well-informed decisions

is consequential for their financial outcomes;

similarly, understanding investors’ decisions can

help the Commission determine whether policy

interventions are appropriately crafted.

ADVOCACY

FOR INVESTORS

THIS SECTION OF OUR ANNUAL

REPORT ON ACTIVITIES describes a

selection of our policy activities on behalf of

investors for the period from October 1, 2022 to

September 30, 2023 (the Reporting Period).

PRIVATE MARKETS

As described in our prior Reports, the Office of

the Investor Advocate has long focused on the

issues surrounding the growth of the private

markets in the United States.30 The SEC regulates

the private markets through, among other things,

the regulation of offers and sales of securities by

issuers, including private companies, pursuant

to the exemptions from the registration process

for securities offerings under the Securities Act of

1933. Over the past 15 years, the private markets

have expanded considerably, with the amount

of capital raised in these markets during this

time exceeding the amount of capital raised in

public registered offerings.31 As we have previously noted, investing in the private markets may

involve heightened risks compared to investing

in the public markets, particularly for retail

investors.32 These risks may include reduced,

incomplete or unreliable disclosure, illiquidity,

and greater risk of fraud and/or investment loss.

Nevertheless, the private markets, encompassing

a variety of asset classes such as equity, debt, real

estate, and private investment funds, have become

a critical pathway for companies seeking to raise

capital and a major source of investment opportunities and portfolio diversification for investors.

During Fiscal Year 2023, we closely monitored

developments relating to the private markets,

including pending legislative proposals in Congress,

and evaluated their potential effects on investors.

In addition, as discussed below, we engaged in

outreach efforts, analyzed and shared research

findings with Commission staff, and explored the

issues and concerns raised by investors and others

regarding the relative lack of available information

on the private markets.

Outreach

During Fiscal Year 2023, the

Office engaged internally and

externally with the Commission,

Commission staff, investors, and

other stakeholders as part of our

ongoing effort to gain a deeper understanding of

the issues and different perspectives surrounding

the private markets. This outreach effort included a

number of events where retail investors recounted

their experiences with private investments or

otherwise voiced their concerns regarding these

investments. We also had the opportunity to meet

with various institutional investors and other

market participants who shared their views on

aspects of the private markets.

For example, we have sought the views of investors

and other parties on the issue of accredited investor

status. A significant reason behind the continued

growth of private markets is the increasing

number of investors who qualify as “accredited

investors” and are thus eligible to invest in private

REPORT ON ACTIVITIES: FISCAL YEAR 2023

TABLE 1. Accredited Investor Definition

Wealth

Net worth

Other Criteria

An individual qualifies as an

accredited investor based on

wealth when that person, either

alone or together with a spouse or

spousal equivalent, has a net worth

that exceeds $1 million, excluding

the value of the person’s primary

residence.

An individual qualifies as an

accredited investor based on

income when that person has had

an annual income that exceeded

$200,000 (or $300,000 with a

spouse or spousal equivalent) in

each of the prior two years and

has a reasonable expectation of

the same for the current year.

An individual can also qualify as

an accredited investor through

other measures of financial

sophistication, for example, by

holding in good standing certain

professional certifications or

designations. Entities can qualify

as accredited investors by

meeting certain criteria under the

accredited investor definition.

offerings under a number of offering exemptions.33

Individuals qualify as accredited investors based

on certain wealth and income thresholds, which

have not been adjusted for inflation since they were

adopted in the 1980s, or through other measures

serving as a proxy for financial sophistication

(Table 1).

The views expressed by commentators on the

accredited investor definition have varied widely,

ranging from support for either an expanded or

a more restrictive definition, or even advocating

for the elimination of the definition altogether.34 In

this regard, we note that the panel discussion on

accredited investor status at the Investor Advisory

Committee’s September 2023 meeting—one of four

panel discussions held by the Investor Advisory

Committee on private markets during Fiscal

Year 2023—highlighted various perspectives and

considerations in amending the definition.35

In view of the magnitude of the private markets

and the significant and growing number of retail

investors now able to invest in these markets as

accredited investors, we expect that continuing and

expanding this outreach effort will be a priority of

the Office going forward as we endeavor to provide

a voice for investors in this important area.

O F F I C E O F T H E I N V E S T O R A D V O C AT E

Investor Research

We believe that investor

research may provide a helpful

source of objective data for

the Commission in making

policy decisions with respect

to the private markets. For example, during

Fiscal Year 2023, our Office of Investor Research

(OIR) analyzed survey data on the investment

knowledge and economic vulnerability of retail

investors, including accredited investors, in the

context of income and wealth. OIR may explore

the possibility of engaging in further research on

topics relating to the private markets and investor

welfare, drawing on its multidisciplinary research

expertise in economics, finance, psychology, and

communications. We believe that these and other

potential areas of inquiry, if undertaken, could

benefit the Commission in considering various

policy approaches to improving the regulation of

the private markets.

Information on Private Markets

Issuers conducting private

offerings often utilize

Regulation D, which sets forth

various exemptions from the

registration requirements of the

Securities Act of 1933, including the widely

used Rule 506(b) exemption.36 In view of the

significant size and opaque nature of the private

markets, some commentators have urged the

Commission to enhance the requirements of Form

D, the notice of an offering under Regulation D

that is filed with the Commission.37 These

commenters point to, among other things, the

lack of transparency in the private markets, the

limited information currently required to be

provided in the form, and the degree of issuer

noncompliance regarding this filing requirement.38

Conversely, other commentators have raised

concerns about the increased burdens and costs

associated with enhancing Form D, such as the

amount and nature of the additional information

that would potentially be made public through

Form D filings.39 During Fiscal Year 2023,

we sought to deepen our understanding of

the issues surrounding Form D as well as

potential approaches to improving the quality of

information available on private offerings both

to the Commission and to investors. We look

forward to working with Commission staff as

they consider whether to recommend additional

action in this area.

EQUITY MARKET STRUCTURE

In 2023, the Commission continued working to

enhance many aspects of the equity market. In

general, our office sought to ensure that the needs

of investors, both large and small, were considered

during this ongoing process of enhancing the

equity market.

As noted in our recent June 2023 Report on

Objectives, in December 2022, the Commission

proposed a set of four significant rulemakings

intended to improve the environment for retail and

institutional trading in the modern market.40 The

proposed rules would: (1) establish a Commissionlevel best execution regulatory framework; (2)

require certain retail orders to be exposed to

competition in open public auctions: (3) amend

existing rules to narrow “tick sizes” for quoting

and trading certain stocks, lower market access

fee caps, and accelerate transparent pricing;

and (4) amend execution quality disclosure

requirements for market centers. Through the

perspective of our office’s overall concern, we

reviewed the proposals and public comments.

We have considered the comments submitted in

response to these proposals in order to consider

how these amendments may help promote the

interests of retail and institutional investors,

whether they be adopted in whole, in part, or in

some amended form. Over the last year, we have

and will continue to encourage the Commission

to consider commenters’ suggested adjustments

that appear most likely to benefit investors when

finalizing these proposals. Our own Office of

Investor Research also continues to consider how

the presentation of disclosure data in this proposal

could best serve investors.

We have also monitored a number of proposals

from self-regulatory organizations on the

topic of equity market structure. For example,

FINRA requested public comment on possible

enhancements to its own rules concerning the

centralization of execution quality disclosure

requirements for market centers operated by

broker dealers.41 Although this effort would

enhance accessibility of a significant portion of the

proposed disclosure reports, it would not eliminate

search costs for those investors looking to compare

and contrast all of the various reports. We continue

to consider how to facilitate centralization in order

to help investor decision making in this space.

Retail investors often contact OIAD to express

concern regarding the practice of short selling, a

trend that has increased over the last few years.

We supported the Commission’s efforts to enhance

transparency in short selling42 as well as the

REPORT ON ACTIVITIES: FISCAL YEAR 2023

opaque network of stock lending and borrowing

that facilitates the practice,43 and look forward to

the Commission and FINRA implementing these

disclosure regimes over the next year. Maintaining

a repository of relevant data should help improve

the Commission’s ability to monitor this area of the

market, as well as provide the public with useful

information about the practices. All investors

should benefit from having free and readily

accessible short sale-related data available through

the Commission’s website.

CYBERSECURITY

Over the years, the Office of the Investor

Advocate has sought to ensure that the interests

of investors are represented and considered

with respect to the cybersecurity initiatives of

the SEC. The increasing frequency and severity

of cybersecurity incidents at public companies,

funds, and other regulated entities have been

well-documented, with significant costs ultimately

being borne by investors.44 With the U.S. economy

growing ever more interconnected through digital

technology and electronic communications,

we expect that cybersecurity and its impact on

investors will continue to be important area of

focus in OIAD’s activities.

During Fiscal Year 2023, OIAD analyzed and

provided investor-focused feedback on the

following Commission rulemaking proposals

relating to cybersecurity in Table 2.

We are encouraged that the Commission has

prioritized cybersecurity in its rulemaking efforts.

Going forward, we will continue to consider

public comments submitted in response to the

pending cybersecurity proposals, and we look

forward to working with Commission staff as they

consider recommending additional action. We will

also monitor the implementation of the recently

TABLE 2. Investor-focused Feedback on These Rulemaking Proposals

Investment Companies and

Investment Advisers

Public Companies

In February 2022, the Commission proposed rules

and amendments intended to enhance cybersecurity

preparedness and improve the resilience of registered

investment advisers, and registered investment

companies and business development companies

against cybersecurity threats and attacks.45

In July 2023, the Commission adopted final rules

requiring public companies to disclose material cybersecurity incidents on Form 8-K and provide enhanced

disclosure of cybersecurity risk management,

strategy, and governance in annual reports.46

Proposed Amendments to Regulation S-P

Market Entities

In March 2023, the Commission proposed

amendments to Regulation S-P intended to enhance

the protection of customer information by, among

other things, requiring broker-dealers, investment

companies, registered investment advisers, and

transfer agents to provide notice to individuals

affected by certain types of data breaches that may

put them at risk of identity theft or other harm.47

In March 2023, the Commission proposed two

rulemakings that are intended to protect the

U.S. securities markets and investors in these

markets from the threat posed by cybersecurity

risks.48 The proposed rules would: (1) require key

market participants to take measures to protect

themselves and investors from the harmful impacts of

cybersecurity incidents; and (2) amend existing rules

to expand the scope of entities subject to Regulation

Systems Compliance and Integrity (“SCI”) and update

requirements to take account of the evolution of

technology and trading.

O F F I C E O F T H E I N V E S T O R A D V O C AT E

adopted public company cybersecurity disclosure

rules and anticipate sharing any feedback on

these rules from our outreach activities with our

Commission colleagues.

PROBLEMS ENCOUNTERED BY

INVESTORS

Pursuant to Exchange Act Section 4(g)(6)(B)(III),

we are required to provide a summary of the

most serious problems encountered by investors

during the prior fiscal year. Two of the more

troubling problems encountered by investors,

as summarized in other sections of this report,

are RILAs and onerous mandatory arbitration

provisions in investment advisory agreements.

In addition, Figure 12 below summarizes some

of the other serious problems that investors have

encountered during Fiscal Year 2023, based on our

consultation with sources both within and outside

the Commission.

Each of the products and practices listed in

Figure 12 represents an area of concern for

investors during the Fiscal Year 2023. OIAD

communicates regularly with various Divisions

and Offices within the Commission, including

with the Division of Enforcement, the Division of

Examinations, and the Office of Investor Education

and Advocacy, among others, to gain awareness of

the problematic products and practices that such

Divisions and Offices may discern in the course

of their work. The Office also maintains regular

communications with other regulators, such as

FINRA, NASAA, PCAOB, and the Municipal

Securities Rulemaking Board to maintain visibility

into problematic products and practices that those

regulators have confronted in their day-to-day

responsibilities during the reporting period.

FIGURE 12. Lists of Certain Problems Encountered by Investors During Fiscal Year 2023

SEC49

• Noncompliance with Regulation BI

• Noncompliance with the Adviser Marketing Rule

• Crypto Asset Securities

• Leveraged and Inverse ETFs

NASAA50

Reported

potentially

problematic

products or

practices

• Digital Asset Frauds

• Pig-Butchering Schemes

• Social Media and Internet Schemes

FINRA51

• Phantom Riches

• Social Consensus

• Source Credibility

• Scarcity

• Reciprocity

PCAOB52

• Proof of Reserve Assertions

• High Audit Deficiency Rates

• Recurring Quality Control Deficiencies

REPORT ON ACTIVITIES: FISCAL YEAR 2023

“

It is our Office’s challenge, duty, and

privilege to provide personalized assistance

to the investors who seek our help, often as a

point of first contact or as a last resort.”

MESSAGE FROM

THE OMBUDS

EVERY DAY, INVESTORS ACROSS THE

COUNTRY and around the world reach out

to the Office of the Ombuds53 for information

and assistance in resolving issues related to the

Commission and the SROs we oversee. These

issues span the breadth of the federal securities

laws and touch on the rules the Commission

and SROs create, as well as the ways those

rules are implemented and enforced. It is our

Office’s challenge, duty, and privilege to provide

personalized assistance to the investors who seek

our help, often as a point of first contact or as a

last resort.

As the retail investor’s confidential channel of

communication with the Commission, our Office

often learns of matters that impact large groups

of investors and matters that have an outsized

impact on an individual or small group of

investors. In these circumstances, we do more than

listen. We act. We inform and educate interested

parties within the Commission about trending

investor protection matters. We work with the

Division of Enforcement to identify and thwart

fraudulent schemes. We study and report on areas

of widespread investor concern. We engage with

SROs and individuals, offices, and divisions within

the Commission to clarify existing practices, and,

where appropriate, to highlight the harms these

practices may cause retail investors.

Our Office operates independently of the

Commission, yet we are bound by a core standard

of impartiality that prevents us from taking sides on

a given issue. Our obligation to remain impartial

precludes us from directly advocating on behalf

of retail investors. However, we remain singularly

committed to amplify their voices, escalating their

concerns when needed, and promoting the fair

application of policies and procedures across the

Commission and the

SROs we oversee.

Fiscal Year 2023 brought

significant change

and challenge to the

Ombuds’ Office. Despite

its small size, our team

has met each challenge,

exceeded expectations,

and achieved significant

milestones on behalf of

retail investors. Among other accomplishments,

our Office completed a landmark study of

mandatory arbitration. We hosted a successful

law school Investor Advocacy Clinic Summit—

broadcast live to almost 2,000 viewers—providing

clinic students the chance to discuss the importance

of their work. We worked closely with the

Office of Information Technology to implement

substantial enhancements to our Ombudsman

REPORT ON ACTIVITIES: FISCAL YEAR 2023

Matter Management System (OMMS) platform,

enhancements that will improve the user

experience and the integrity of our data collection.

But perhaps most importantly, we have personally

helped over 2,600 investors, thwarting fraudulent

schemes, providing useful information, and,

sometimes, just listening. This is the heart of our

work. It is work unlike any other, and, for this

dedicated team, the work is its own reward.

We are grateful for the opportunity to personally

serve the retail investor community in this unique

role. In 2024, I hope that our Office will become

a more active liaison for retail investors. We

look forward to expanding upon and fortifying

our relationships within the Commission, our

relationships with stakeholders committed to

investor protection, and especially our relationships

with the investor communities that we serve.

Respectfully Submitted,

STACY A. PUENTE

Ombuds

O F F I C E O F T H E I N V E S T O R A D V O C AT E

WHO WE ARE

In March 2023, Investor Advocate Cristina Martin

Firvida announced the appointment of Stacy A.

Puente as Ombuds of the Securities and Exchange

Commission.54 Ms. Puente leads an experienced

team of lawyers, each with differing subject matter

expertise, all dedicated to providing personalized,

tailored assistance to the retail investors that

contact the Ombuds Office for help. Through

direct engagement with investors, interested parties

within the Commission, and external stakeholders

committed to investor protection issues, the

Ombuds Office fulfills its statutory role as the

confidential liaison between retail investors and

the Commission.55

This Ombuds’ Report56 discusses the work and

efficacy of the Office for the Fiscal Year beginning

October 1, 2022, through September 30, 2023.

WHAT WE DO

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

78d(g)(8), requires the Investor Advocate to

appoint an Ombudsman (Ombuds) to act as a

confidential liaison in resolving retail investors’

concerns and questions about the Commission

and the self-regulatory organizations (SROs) the

Commission oversees.57

The Ombuds is required by statute to:

(i) help retail investors resolve questions and

complaints they may have with the Commission or with SROs the Commission oversees;

(ii) review and make recommendations regarding

policies and procedures that encourage

investors to present questions to the Investor

Advocate regarding compliance with the

securities laws;

(iii) take steps to ensure the confidentiality of

investor communications with our Office; and

(iv) submit semiannual reports to the Investor

Advocate that describe the activities and

evaluate the effectiveness of the Office.58

In carrying out our objectives, the Ombuds team

adheres to three core standards of practice, as

illustrated in Figure 13.

FIGURE 13. Ombuds: Three Core Standards of Practice

Confidentiality

The Ombuds takes necessary steps to preserve the confidentiality of communications

with investors, although communications may be disclosed where the investor

consents, or where the investor alleges a violation of the securities laws or other

exigent matter.

Impartiality

The Ombuds does not take sides on issues—instead, our Office fields investor

questions and complaints to clarify issues, facilitate discussions, and identify options

and resources that address investor issues or concerns.

Independence

Though the Ombuds reports directly to the Investor Advocate, our office is

independent from the SEC. The Ombud’s Report, included as a part of the Investor

Advocate’s semi-annual report to Congress, is filed without any prior review or

comment from the Commission or other SEC staff.

REPORT ON ACTIVITIES: FISCAL YEAR 2023

HOW WE HELP

Figure 14 illustrates the process by which we

receive and assist investors with their requests.

Additionally, we submit credible allegations

of securities violations to the Division of

Examinations and the Division of Enforcement

for potential examination, investigation, or

enforcement action. We study and report on issues

of significant investor impact. We work with

other offices and divisions across the Commission,

as well as SROs, to assess the effects of specific

policies or practices on retail investors. Last, we

inform the Investor Advocate and other interested

parties within the Commission about trending

investor protection concerns.

How to Reach Us

Individuals and interested parties may contact our

Office by email, telephone, and regular mail.59

However, our primary means of corresponding

with the public is through the OMMS,60 an

electronic portal for receiving, responding to, and

managing data collected from investor submissions.

Through the diligent efforts of the SEC’s Office of

Information Technology, the Ombuds Office will

launch a series of substantial enhancements to the

existing OMMS system in Fiscal Year 2024. These

enhancements are designed to increase ease of use

for investors, expedite and standardize processes

for Ombuds staff when responding to investor

submissions, and more effectively track investor

submissions by volume and other characteristics.

FIGURE 14. Ombuds Process: Review, Research, Resolve

Review

The Ombuds team reviews

all incoming investor

correspondence to determine if

and how we may assist.

Research

The Ombuds team identifies the nature of

the issue, conducts tailored research, and

engages with appropriate personnel within

the Commission or SROs to gather relevant

information.

Resolve

The Ombuds team works to

resolve investor questions and

complaints by providing investors

with requested information and

access to additional resources, by

escalating certain matters through

appropriate channels, when necessary,

and by monitoring outcomes.

O F F I C E O F T H E I N V E S T O R A D V O C AT E

INVESTOR VOICES, BY THE NUMBERS

The Ombuds team maintains records in OMMS of

all inquiries and responses handled by our Office.

When a new matter is received, it is assigned a label

or “Primary Issue Category,” reflecting the nature

of the issues raised in the submission. In tracking

investor submissions by volume and by Primary

Issue Category, OMMS may serve as an early

warning system—identifying existing or potential

problems on the horizon for retail investors.61

FIGURE 15. Number of Investor Matters

Received from October 1, 2022, to

September 30, 2023

In Fiscal Year 2023, the Ombuds team

additionally reviewed and/or responded to 2,828

additional emails, phone calls, and other forms

of correspondence relating to the 2,605 investor

matters—for a combined total of 5,433 contacts

with or on behalf of retail investors. Figure 16

FIGURE 16. Number of Follow-up Contacts

with Investors Arising from Their Initial

Submission

2.5%

9.8%

15.7%

0.5%

In Fiscal Year 2023, the Ombuds Office received

and processed 2,605 matters. Figure 16 illustrates

the number of investor matters received from

October 1, 2022, to September 30, 2023, divided

into the 12 Primary Issue Categories:62

10.0%

17.5%

7.5%

0.4%

11.7%

11.1%

6.1%

4.5%

31.7%

36.1%

13.5%

9.2%

2.5%

0.3%

2.5% 3.5%

2.6%

0.2%

0.4%

0.3%

Atypical Matters (71)

Atypical Matters (255)

FINRA Complaints/Questions/Procedures (284)

FINRA Complaints/Questions/Procedures (194)

Non-SEC/Other Matters (330)

Non-SEC/Other Matters (288)

SEC Investigations/Litigation/Enforcement

Actions (172)

SEC Investigations/Litigation/Enforcement

Actions (118)

Allegations of Securities Law Violations/Fraud (383)

Allegations of Securities Law Violations/Fraud (240)

Securities Laws/Rules/Regs/Procedures (100)

Securities Laws/Rules/Regs/Procedures (68)

Securities Ownership (8)

Securities Ownership (6)

SRO Rules/Procedures (10)

SRO Rules/Procedures (8)

Company Disclosures and Information (71)

Company Disclosures and Information (66)

Investment Products/Retirement Accounts (895)

Investment Products/Retirement Accounts (941)

Organized Campaigns (10)

Organized Campaigns (12)

SEC Questions/Complaints (494)

SEC Questions/Complaints (409)

Total 2,828

Total 2,605

REPORT ON ACTIVITIES: FISCAL YEAR 2023

details the number of follow-up contacts with

investors arising from their initial submissions,

separated by Primary Issue Category.

We believe that the OIR study, viewed in

conjunction with increasing investor complaints

about regulatory messaging, prompts the question

whether regulatory communications and industry

disclosures are creating an imbalanced landscape for

investors, where those with less effective access to

information are at higher risk of loss due to less

informed investment decisions. We echo the

concerns stated in the Message from the Investor

Advocate, that, as the number of retail investors

continues to grow, so will the need for improved

communications between regulators and the public,

as well as the need for regulators to reexamine the

existing disclosure regime for industry participants.64

An Early Warning System

From Fiscal Year 2022 to Fiscal

Year 2023, the Ombuds observed a

significant increase in submissions

involving FINRA Complaints/

Questions/Procedures and a related uptick in

questions surrounding digital assets. We believe the

increase in questions and concerns submitted to the

Ombuds regarding these areas arises from investor

dissatisfaction with the clarity, content, and timing

of communications from regulators about financial

industry rules, products, and market activity.

Measuring Our Progress through the Years

Since the Office of the Ombuds was

first established in 2014, the number of

investor matters and investor contacts

has steadily grown. Figure 17 illustrates

the trend toward increased investor engagement

with the Ombuds Office.

At the same time, as observed above in the

discussion of RILAs,63 OIAD’s research suggests

that disclosures about increasingly complex

products may not sufficiently inform the investing

public about the nature of and risks associated with

these products.

FIGURE 17. Volume of OMMS matters and OMMS Contacts

5,632

3,231

Contacts

New Matters

5,712

2,932

5,433

2,828

4,088

Total Contacts

3,693

2,441

2,213

1,224

727

228

222

1,002

226

1,105

499

FY 2015

2,780

1,331

2,401

1,494

1,480

1,647

FY 2019

FY 2020

1,045

2,605

449

FY 2016

FY 2017

FY 2018

O F F I C E O F T H E I N V E S T O R A D V O C AT E

FY 2021

FY 2022

2023

Between Fiscal Year 2015 and Fiscal Year 2023,

there has been a 522 percent increase in the number

of investor matters received, and a corresponding

1,240 percent increase in the number of investor

contacts arising from these matters.

These numbers alone do not reflect the time

and effort the Ombuds team invests in research,

information gathering, internal and external

collaboration to provide each investor with the

tailored responses they seek.

The increase in our investor engagements may

be due to an expanding sector of retail investors,

amplified investor interest in Commission rules

and enforcement efforts, and our Office’s efforts to

raise awareness of the assistance we provide. It is

our intention to help an ever-growing number of

investors—particularly those who need our help

the most.

TRENDS AND NOTABLE MATTERS—

FISCAL YEAR 2023

Digital Assets

Following the Commission’s

announcement of litigation against

several crypto platforms, the Ombuds

Office received many questions and

comments from investors about crypto products.

Some investors questioned the SEC’s authority to

regulate digital assets, while others supported the

Commission’s regulatory efforts, even calling for a

Commission rulemaking to combat fraud relating

to cryptocurrency and digital assets. Given the

influx in crypto-related comments and complaints

reported in Fiscal Year 2023, we are hopeful that

the ongoing efforts of regulators and legislators

in this space will help mitigate investor harm and

increase investor confidence.

Short Selling and Threshold Lists

During Fiscal Year 2023, the Ombuds

continued to receive a high volume

of complaints about short sales in

various exchange-traded securities.

Many of these complaints focused on threshold

lists—SRO-generated lists of certain equities with

a “fail to deliver” position for five consecutive

settlement days.65 These investors often believed

the inclusion of a security on a threshold list

was evidence of abusive “naked shorting.” The

Ombuds provided investors information about

Regulation SHO,66 the Commission regulation

governing the short sale of equities and clarified

that the inclusion of an equity on a threshold list

does not necessarily indicate the occurrence of

abusive short selling or other impermissible trading.

SRO Communications with Investors

As noted above, many complaints

received this Fiscal Year involved

SRO communications with retail

investors. These investors generally

expressed concern that SROs were not providing

clear or sufficient information directly to the

retail public. Many investors held positions in

securities impacted by SRO regulatory decisions

and complained that SROS did not provide

information about those regulatory decisions in

a manner that was easily accessible and suitable

for non-professionals. In addressing these investor

concerns, the Ombuds engaged with staff in

appropriate offices at the Commission to voice

these investor concerns.

Discovery in FINRA Arbitration

In Fiscal Year 2024, Ombuds staff

intends to complete and report

the findings of its study of the

incidence and potential effects of

abusive discovery practices in the FINRA Dispute

Resolution forum.

REPORT ON ACTIVITIES: FISCAL YEAR 2023

ENGAGING WITH THE PUBLIC

2023 SEC Investor Advocacy

Clinic Summit Overview

On Wednesday, March 29, 2023, the Ombuds

Office and the SEC Division of Enforcement’s

Retail Strategy Task Force (RSTF) hosted the

fourth annual SEC Investor Advocacy Clinic

Summit (Summit) as a virtual event. For the

second consecutive year, the Summit was a joint

endeavor between the Ombuds and RSTF. The

event, livestreamed to over 1,800 external viewers

on the SEC’s website and to SEC staff internally,

was intended to highlight the work of the law

school clinics and raise public awareness of the

services they provide. Students discussed the origin

of the clinics and nature of their work, the role

of mandatory arbitration in resolving brokerage

disputes, two representative cases, resource

allocation, and other challenges to the viability

of the clinics.

All 11 U.S. law school investor advocacy clinics67

shared their perspectives and engaged with SEC

subject matter experts on pressing issues currently

facing retail investors. Given the success of this

and prior summits, we look forward to hosting the

2024 Summit as a signature feature of the Ombuds’

commitment to retail investors and the work of the

law school clinics.

O F F I C E O F T H E I N V E S T O R A D V O C AT E

Additional Engagement Activities

In addition to the Summit, Ombuds staff

participated in and attended select securities

industry events with the goal of improving our

service to retail investors and educating external

groups about the services our Office can provide.

These events included informational meetings and

listening sessions with the American Association

of Justice, the American Association of Retired

Persons, international regulators, and directors of

the law school investor advocacy clinics. Ombuds

staff also met periodically with the Coalition of

Federal Ombudsmen, as well as the Public Investors

Arbitration Bar Association (PIABA), FINRA, and

the FINRA Ombuds.

Pursuant to the Office’s study of mandatory

arbitration among SEC-registered investment

advisers, the Ombuds conducted interviews

and engaged in discussions about mandatory

arbitration with PIABA, FINRA Dispute

Resolution Services, the American Association

of Individual Investors, the Securities Industry

and Financial Markets Association, the North

American Securities Administrators Association,

Better Markets, Financial Services Institute, the

American Arbitration Association, and JAMS.

INVESTOR INITIATIVES

STUDY AND FINDINGS

Mandatory Arbitration among

SEC-Registered Advisers

In our Report on Objectives for Fiscal Year 2023,

the Ombuds Office acknowledged troubling

anecdotal information about investor experiences

with their advisers in mandatory arbitration.68

Prompted by this information, we committed to

initiating a study of mandatory arbitration among

SEC-registered investment advisers (RIAs), to

develop a “more complete understanding of RIA

arbitration, and… identify any problematic issues

impacting retail advisory clients.”69 What follows is

a summary of this important study and its potential

implications for advisory clients.

OVERVIEW

In January 2023, the Ombuds Office, in

coordination with the Office of Investor Research

and the Investor Advocate Office of Chief Counsel

(hereafter, collectively, “Staff”), launched a study

to evaluate: (1) the occurrence of mandatory

arbitration clauses in SEC-registered investment

adviser agreements; (2) the occurrence of certain

restrictive terms in mandatory arbitration clauses,

such as damage limitations and class action

waivers; (3) the frequency of SEC-registered adviser

arbitration; (4) the frequency of unpaid arbitration

awards among SEC-registered advisers; and (5) the

effects of mandatory arbitration clauses on clients

harmed by their advisers.70

Staff reviewed a sample of investment advisory

agreements and compiled data regarding the

occurrence of mandatory arbitration clauses, as

well as the occurrence of various restrictive terms.

To correct any potential non-representativeness of

this sample, Staff used inverse probability weighting

to adjust this data.

Due to the lack of publicly available information

about SEC-registered adviser arbitration,

Staff could neither determine the frequency of

adviser arbitration nor the frequency of unpaid

adviser awards. Staff also could not identify

a representative sample of advisory clients to

determine the effects of mandatory arbitration

clauses. Instead, as a proxy for the perspectives of

advisory clients, Staff interviewed eight external

stakeholder groups identified as having information

relevant to the issue of mandatory arbitration, and/

or as having publicly expressed opinion on the

issue of mandatory arbitration. Their views, while

anecdotal, provided insight into the potential harms

and benefits of mandatory arbitration clauses for

advisory clients.

SUMMARY OF FINDINGS

Occurrence of Mandatory Arbitration

Clauses and Other Arbitration Terms

Based on the sample of 579 investment advisory

agreements reviewed, Staff estimated that

approximately 61 percent71 of SEC-registered

advisers serving retail investor clients incorporated

mandatory arbitration clauses into their investment

advisory agreements.

Of the agreements that contained mandatory

arbitration clauses, Staff estimated the frequency

with which advisers incorporated the specific terms

in Table 3.

REPORT ON ACTIVITIES: FISCAL YEAR 2023

TABLE 3. Frequency of Specific Provisions in Mandatory Arbitration Clauses

Agreement designates a particular dispute resolution forum:

92%

When designating a forum, advisers designated the following fora:

American Arbitration Association (AAA)

83%

Financial Industry Regulatory Authority (FINRA) Dispute Resolution Services

10%

JAMS

Other

37%

Agreement designates particular forum rules:

When designating forum rules, advisers selected the following rules:

AAA Commercial Rules

83%

JAMS Streamlined Rules and Procedures

JAMS Comprehensive Rules and Procedures

AAA Securities Arbitration Supplementary Procedures

Agreement designates the arbitration venue:

60%

When designating arbitration venue, percent of agreements that did not consider client’s location or

place of business:

97%

Agreement precludes participation in class action

Agreement limits claims the client may assert

Agreement limits damages that may be awarded

11%

Agreement includes fee-shifting provision

18%

Frequency of Adviser Arbitration,

Unpaid Awards

State-registered advisers, investment adviser

representatives, and SEC-registered advisers are

not uniformly required to disclose information

about arbitrations with their clients.72 Moreover,

SEC-registered advisers’ preferred dispute

resolution fora do not track the number of adviser

arbitrations. For these reasons, Staff could not

obtain data about the frequency of arbitration or

unpaid awards among SEC-registered advisers.

As a related point, private arbitrators lack

jurisdiction over the parties after an award is

issued. Parties to an arbitration are expected to

O F F I C E O F T H E I N V E S T O R A D V O C AT E

abide by the terms of the arbitrator’s award.73

However, when a party fails to comply with an

arbitration award, the other party may need to

enforce the award through the court system and

litigate a dispute over an unpaid award. A survey

of federal and state case law did not yield results

upon which to reliably estimate the frequency of

litigation involving unpaid arbitration awards

among advisers.

Stakeholder Perspectives74

Stakeholders unanimously agreed that mandatory

arbitration clauses benefited advisers by, among

other things, simplifying the dispute resolution

process through limited discovery75 eliminating

the right to appeal,76 maximizing privacy

during and after the arbitration, and increasing

both predictability and efficiency through the

designation of a known arbitration forum with

familiar rules. Proponents of mandatory arbitration

further asserted that advisory clients—like their

advisers—experienced these same benefits.

In contrast, critics of mandatory arbitration argued

that advisers experienced these benefits at the

expense of clients. Because advisers unilaterally

draft their advisory agreements, critics believed

advisers often selected the forum, the rules, and

the venue that would likely increase costs for the

client and favor the adviser. They also asserted that

the limited ability to exchange information during

discovery might prevent clients from obtaining

evidence to prove their claims, and the inability

to appeal would likely preclude review of an

arbitrator’s decision. Critics also asserted the lack

of uniform disclosure requirements for adviser

arbitration information might allow recidivist

advisers to conceal client allegations of wrongdoing from regulators and prospective clients.

Stakeholders agreed, to varying degrees, that

advisers should consistently be required to disclose

more complete information about customer

arbitrations and unpaid awards. Proponents

of mandatory arbitration argued that, while

disclosure of all customer allegations might subject

advisers to unwarranted reputational harm, full

and fair disclosure of allegations the adviser deems

material would create a competitive advantage

for honest advisers and promote fairer markets.

Critics of mandatory arbitration more broadly

argued that advisers’ fiduciary duty necessitated

disclosure of customer arbitration information,

irrespective of whether the adviser deemed the

information material.

Several stakeholders also stated that differences

between the adviser and broker77 arbitration

regimes disadvantaged advisory clients. For

instance, some stated that certain provisions

permissible in advisory agreements, such as class

action waivers, damage limitations and claim

limitations, are impermissible in agreements

between brokers and their customers. These stakeholders further argued that such limiting terms

negatively affect arbitral outcomes for advisory

clients. Others stated that the costs associated with

private adviser arbitration significantly exceed

the costs associated with broker arbitration, and,

in some instances, the high costs could preclude

advisory clients from filing arbitration claims at all.

Comparison with Broker Arbitration

A comparison of relevant rules in the FINRA Code

of Arbitration Procedure for Customer Disputes

(FINRA Code) supported stakeholder concerns

about the use of restrictive terms in advisory

agreement mandatory arbitration clauses. While

the FINRA Code applies uniformly to disputes

between customers and their brokers and governs

contractual provisions relating to mandatory

arbitration,78 advisers may choose the terms of their

respective mandatory arbitration clauses.

As noted above, six percent of SEC-registered

advisory agreements with mandatory arbitration

clauses included class action waivers, five percent

of agreements limited the types of claims that could

be asserted, and 11 percent limited the types of

damages that a client may seek in the arbitration.

In contrast, the FINRA Code prohibits usage of

class action waivers,79 prohibits language that limits

a party’s ability to file “any claim” in arbitration,80

and prohibits language that limits the ability of

arbitrators to make “any award.”81

Of the 60 percent of mandatory arbitration clauses

that designated a venue for the arbitration hearing,

97 percent designated a location that disregarded

the client’s location. In practice, clients could be

required to participate in an arbitration far from

REPORT ON ACTIVITIES: FISCAL YEAR 2023

their place of residence, incurring travel and

lodging expenses to attend in-person hearings.

Under the FINRA Code, the default location

for the arbitration venue is generally the hearing

location nearest the customer’s residence at the time

of the events leading to the dispute.82

A notable percentage of advisory agreements

with mandatory arbitration clauses also imposed

requirements on the type and/or number of

arbitrators—e.g., requiring a panel of three

arbitrators, or requiring arbitrators to be

affiliated with the securities industry. Because

each arbitrator is compensated separately, a panel

of three arbitrators would predictably increase

the cost associated with the arbitration. Several

stakeholders also suggested that arbitrators with

securities industry ties might be biased in favor of

advisers. By comparison, the FINRA rules require

panels to consist of a single arbitrator, unless the

claim amount exceeds $100,000, or the parties

jointly agree to a three-arbitrator panel.83 In cases

with one arbitrator, the FINRA Code requires the

selection of a public arbitrator, unaffiliated with

the securities industry, to preside over the dispute.84

In cases with three arbitrators, the FINRA Code

guarantees parties the ability to select a panel of all

public arbitrators.85

Although arbitrators in FINRA DRS are not

required to write opinions or provide explanations

for an award, arbitrator awards must be in

writing.86 In contrast, many advisory agreements

included provisions that prohibited arbitrators

from providing written awards.

Staff’s review also supported the notion that costs

of adviser arbitration generally exceed those of

broker arbitration. For instance, the frequent

designation of commercial, or business-to-business,

arbitration rules result in higher initial filing fees

and other expenses for clients, potentially making

O F F I C E O F T H E I N V E S T O R A D V O C AT E

the filing of a claim cost-prohibitive. Conversely,

as noted above, the FINRA Code of Arbitration

Procedure for Customer Disputes governs all

disputes between brokers and their customers. In

FINRA DRS, initial filings fees range from $50

(for matters valued up to $1,000) to a maximum

of $2,300 (for matters valued over $5,000,000).87

By comparison, under the AAA Commercial

Arbitration Rules, clients bringing a matter valued

at $75,000 or less must pay an initial filing fee

of $925 if the panel consists of one arbitrator.88

AAA commercial arbitrations with three or more

arbitrators are subject to a minimum initial filing

fee of $4,400.89 In many instances, this filing fee

alone might prevent clients from bringing claims

against their advisers.

RECOMMENDATIONS AND

CONCLUSIONS

Recommendations Regarding the

Use of Restrictive Terms in Mandatory

Arbitration Clauses

Based on Staff estimates, most investment

advisory agreements contain mandatory

arbitration clauses, and some contain restrictive

terms that could drive up the costs of arbitration

for advisory clients, and/or negatively affect the

arbitration process or arbitration outcomes for

advisory clients. Table 3 reflects the approximate

frequency with which such terms are included in

advisory agreements.

We note that the Investment Advisers Act of 1940

(Advisers Act) establishes a federal fiduciary duty

for investment advisers, fundamental to advisers’

relationships with their clients.90 An investment

adviser’s fiduciary duty comprises a duty of care

and a duty of loyalty, which require an adviser

to, at all times, act in the best interests of the

client, and prohibit an adviser from placing its

own interests ahead of the client’s interests.91

The adviser’s fiduciary duty is broad and applies

to the entire relationship between the adviser

and its client.92 It “follows the contours of the

relationship between the adviser and its client,

and the adviser and its client may shape that

relationship by agreement, provided that there is

full and fair disclosure and informed consent.”93

The fiduciary duty is enforceable through the

antifraud provisions of the Advisers Act, which

generally prohibit an adviser from “engaging in any

transaction, practice, or course of business which

operates as a fraud or deceit upon any client or

prospective client.”94

The Commission has made clear that, while

an adviser’s fiduciary duty may be shaped by

agreement, the duty may not be waived.95 The

Commission has additionally stated that, where

certain clauses in retail advisory agreements

purport to relieve an adviser from liability for

nonwaivable claims, such clauses are likely to

mislead retail clients into not exercising their legal

rights in violation of the Advisers Act antifraud

provisions.96 Recently, the Commission found

that an adviser willfully violated the Advisers Act

antifraud provisions by including such a “hedge”

clause in its advisory agreement. 97 In so finding,

the Commission noted the adviser had no policies

and procedures to assess a client’s sophistication

in the law or to explain the meaning of the clause,

provided no enhanced disclosures regarding when

a client may retain a right of action, and offered no

evidence that the clause would be understood by

retail clients.98

In similar manner, it is the view of the Office

of the Investor Advocate that if an adviser

includes language in an advisory agreement

preemptively limiting the damages available

to clients in arbitration, or limiting the types

of claims that clients may assert against the

adviser in an arbitration, such limiting language

might mislead retail clients into not exercising

their legal rights and would constitute a breach

of the adviser’s fiduciary duty in violation of

the antifraud provisions of the Advisers Act.99

We further believe that contractual provisions

precluding clients from participating in class

action lawsuits, designating an arbitration venue

without regard to a client’s physical location,

invoking commercial arbitration rules intended

for business-to-business disputes, and/or imposing

fee shifting provisions that unilaterally impose

the costs and fees of an arbitration on the client

have the obvious and likely intended effect

of increasing the cost and inconvenience of

arbitration for advisory clients. It is therefore also

our view that, where such provisions are included

in an advisory agreement, absent evidence the

adviser has made effort to gauge whether the

client understands these provisions and the client

has provided informed consent, the adviser is

placing its interests ahead of the client’s interests

in violation of the fiduciary duty.

Recommendations Regarding Disclosure

of Arbitration-Related Information

An absence of information prevented Staff from

generating reliable statistics about the frequency of

SEC-registered adviser arbitration or the number

of unpaid arbitration awards. This absence of

information is attributable to: (1) a lack of express

arbitration-related disclosure requirements for

SEC-registered advisers; and (2) the privatized

nature of adviser arbitration. Both factors interact

to obscure SEC-registered investment advisers’

arbitration-related information from the view of

investors and regulators, as described below.

State-registered advisers and individual

adviser representatives are required to disclose

their involvement in certain types of client

arbitrations in standardized disclosure forms.100

By comparison, SEC-registered advisers are not

specifically required to disclose information about

REPORT ON ACTIVITIES: FISCAL YEAR 2023

arbitrations with clients; rather an adviser must

only disclose facts it deems material to the advisory

relationship.101 The Commission previously

considered whether to require advisers to disclose

arbitration information in their Forms ADV,

but determined not to require such disclosure,

as arbitration settlements or awards might not

reflect a finding that an adviser had violated the

law, and disclosure might cause unwarranted

reputational harm to the adviser.102 However,

the Commission suggested that advisers should

“carefully consider whether particular arbitration

awards or settlements do, in fact, involve or

implicate wrongdoing and/or reflect on the

integrity of the adviser, and should be disclosed to

clients in the brochure or through other means.”103

The Commission also stated it would “continue to

assess whether we should require that these events

be reported by firms registered with us.”104

It is the view of the Investor Advocate’s Office that

an adviser’s involvement in a client arbitration

is often material to the advisory relationship

and should be a requisite disclosure in certain

circumstances. We note that the Commission’s

prior concerns about reputational harms arising

from arbitration-related disclosures would apply

equally to state-registered advisers, investment

adviser representatives, and brokers, all of which

are required to disclose certain arbitrationrelated information. We therefore believe that

SEC-registered advisers should similarly disclose

this information. We further believe that, to the

extent practicable, arbitration-related disclosures

should be harmonized across adviser types

to decrease investor confusion and promote

regulatory clarity.

We further note, however, that the privatized

nature of adviser arbitration poses a significant

obstacle in any attempt to assess the truth or

falsity of advisers’ arbitration-related disclosures.

O F F I C E O F T H E I N V E S T O R A D V O C AT E

As illustrated in Table 3, advisers often choose to

arbitrate with clients in private dispute resolution

fora such as AAA and JAMS. The SEC lacks

jurisdiction over these private fora, and therefore

cannot easily obtain information with which to

confirm the existence or outcome of an adviser’s

arbitration. These fora also do not aggregate or

otherwise make publicly available information

about adviser arbitration. In the absence of this

information, regulators would ostensibly need to

rely on the integrity of an adviser’s arbitrationrelated self-disclosures to determine whether the

adviser satisfied its disclosure obligations.

Conclusions

We believe precluding advisers from using

restrictive terms in mandatory arbitration clauses

that negatively affect investors would help create a

fairer, more balanced framework for arbitrations

between advisers and their retail clients. We

further believe that establishing arbitration-related

disclosure requirements for SEC-registered advisers

would better enable investors and regulators

to evaluate advisers’ prior conduct, and to

prevent recidivist adviser misconduct. However,

we do not believe the implementation of these

recommendations will resolve broader fairness

concerns associated with adviser arbitration. Where

advisory clients are compelled to arbitrate disputes

in a private dispute resolution forum, where

the SEC cannot help to ensure that appropriate

procedural protections for investors exist in that

forum, and where the SEC cannot easily obtain

information about underlying arbitrations in that

forum, it is our view that retail investors might

face procedural disadvantages that negatively

impact arbitral outcomes. Moreover, any such

disadvantages or negative outcomes would not be

measurable or observable, given the opaque nature

of privatized arbitration and lack of information

exchange between the SEC and private dispute

resolution fora.

We note that Congress granted the SEC the

authority to “prohibit, or impose conditions or

limitations on the use of agreements that require

customers or clients of any investment adviser

to arbitrate any future dispute between them

arising under the Federal securities laws, the

rules and regulations thereunder, or the rules of

a self-regulatory organization if it finds that such

prohibition, imposition of conditions, or limitations

are in the public interest and for the protection

of investors.”105 In light of this explicit authority,

we recommend that the Commission consider

temporarily suspending the use of mandatory

arbitration clauses in advisory agreements until

further exploration of the associated costs and

benefits to advisory clients is undertaken.

As detailed in Figure 18, we strongly encourage

investors to learn about the differences between

arbitration and litigation,106 and to ask

appropriate questions of their advisers where

mandatory arbitration clauses are included in

advisory agreements.

FIGURE 18. What You Can Do . . .

Review your advisory agreement for restrictive and unfair terms, or language that might violate your

right to recover damages if you are harmed by your adviser. Contact the SEC Ombuds to report these types of

provisions in your advisory agreement.

Ask your adviser whether they are or have been named in an arbitration or civil litigation. If they have,

ask for details. If you are uncomfortable with their responses, Consider hiring another adviser.

Search the Investment Advisers Public Disclosure (IAPD) database on the SEC website for

arbitration and civil litigation information about a state-registered adviser or investment adviser representative.

Ask your state securities regulator for more information about your state securities adviser or

investment adviser representative. For a full list of state securities regulators in the U.S., visit the North

American Securities Administrators Association website.

REPORT ON ACTIVITIES: FISCAL YEAR 2023

Endnotes

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

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

(i).

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

(i).

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

(B).

SEC, SEC, NASAA, and Wisconsin DFI to Host

Investor Roundtable in Madison, Wisconsin on

July 25, Release No. 2023-136 (Jul. 21, 2023), https://

www.sec.gov/news/press-release/2023-136.

SEC, U.S. Securities and Exchange Commission

Investor Advisory Committee, Meeting Agenda

(Sep. 21, 2023) https://www.sec.gov/about/advisorycommittees/investor-advisory-committee/iac092123agenda.

In this section of the report, we refer to the

Office of Investor Research (OIR) and POSITIER

synonymously.

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

(B).

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

(4)(D-E).

See Exec. Order No. 13,563, 3 C.F.R. § 13563 (2011).

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

(C).

See U.S. House of Representatives, Consolidated

Appropriations Act (2023), H.R. 2617, 117th Cong.

(2022), https://www.congress.gov/bill/117th-congress/

house-bill/2617. In that Act, Congress indicated

that “the Commission shall prepare and finalize,

new or amended rules, as appropriate, to establish

a new form . . . on which an issuer of a registered

index-linked annuity may register that registered

index-linked annuity, subject to conditions the

Commission determines appropriate . . . with respect

to the registered index-linked annuity.” In addition,

Congress indicated that in designing the form, “the

Commission shall . . . engage in investor testing; and

incorporate the results of the testing required . . . in

the design of the form, with the goal of ensuring that

key information is conveyed in terms that a purchaser

is able to understand.”

See SEC, Registration for Index-Linked

Annuities; Amendments to Form N-4 for IndexLinked and Variable Annuities, Release No.

33-11250 (Sept. 29, 2023) [88 FR 71088 (Oct.

13, 2023)], https://www.federalregister.gov/

documents/2023/10/13/2023-21986/registration-forindex-linked-annuities-amendments-to-form-n-4-forindex-linked-and-variable.

See Brian Scholl et al., A Picture is Worth a

Thousdand Dollars: Visual Aids Promote Investor

Decisions, Journal of the Association for Consumer

Research (2023), Volume 8, Issue 4, 416-428, https://

www.journals.uchicago.edu/toc/jacr/2023/8/4.

SEC, Office of the Investor Advocate, Report

on Activities, Fiscal Year 2022 (Dec. 15, 2022),

subsection titled “Helping Investors Make Decisions

About Mutual Funds Using Visual Aids” in https://

dcm.sec.gov/files/fy22-oiad-sar-activities-report.pdf.

O F F I C E O F T H E I N V E S T O R A D V O C AT E

Calculations based on Morningstar Intelligence

Annuity Tool. See Morningstar, Annuity comparison

tool: Annuity intelligence. Retrieved March 2023,

from https://www.morningstar.com/products/annuityintelligence.

See generally IRS, Publication 575 (2022),

Pension and Annuity Income, https://www.irs.gov/

publications/p575#en_US_2022_publink1000265471.

See Office of the Investor Advocate RILA report,

Investor Testing Report on Registered Index-Linked

Annuities https://www.sec.gov/files/rila-report-092023.

pdf.

Id.

See U.S. House of Representatives, Consolidated

Appropriations Act (2023), H.R. 2617, 117th Cong.

(2022), https://www.congress.gov/bill/117th-congress/

house-bill/2617.

The use of “KIT” in this document is consistent with

its usage in Investor Testing Report on Registered

Index-Linked Annuities at https://www.sec.gov/files/

rila-report-092023.pdf. Specifically, all references to

the KIT refer to different hypothetical disclosures used

for testing purposes.

See SEC, Registration for Index-Linked

Annuities; Amendments to Form N-4 for IndexLinked and Variable Annuities, Release No.

33-11250 (Sept. 29, 2023) [88 FR 71088 (Oct.

13, 2023)], https://www.federalregister.gov/

documents/2023/10/13/2023-21986/registration-forindex-linked-annuities-amendments-to-form-n-4-forindex-linked-and-variable.

In prior efforts, POSITIER researchers discovered

that jargon is an important barrier to investors’

understanding of mutual funds. For additional

information, see Chin et al., Jargon in Fund

Fee Disclosures (SEC, Working Paper No.

2023-03, 2023), https://www.sec.gov/files/jargonfund-fees-2021-01.pdf.

In the report, these subscales were respectively

called: “How RILA Works”; “Appropriateness”;

“Insurance”; and “Liquidity.”

See A. M. Best, Registered Index-Linked

Annuities Gaining Foothold in VA Segment

(2019), https://news.ambest.com/newscontent.

aspx?AltSrc=29&refnum=221068#:~:text=A%20

new%20Best’s%20Special%20Report,will%20

outpace%20other%20individual%20annuity

Life Insurance Marketing and Research Association,

LIMRA: Annuities Forecast to Hover in Record

Range of $300 Billion for Next Several Years (2023),

https://www.limra.com/en/newsroom/industrytrends/2023/limra-annuities-forecast-to-hover-inrecord-range-of-$300-billion-for-next-several-years/.

See Alycia Chin et al., Framing Effects in Expectations

Beliefs about the Stock Market (SEC, Working Paper

No. 2023-02, 2023), https://www.sec.gov/files/sme.

pdf.

See I.P. Levin et al., All Frames Are Not Created

Equal: A Typology And Critical Analysis Of Framing

Effects. Organizational Behavior and Human Decision

Processes, (1998), 76(2), 149-188.

Saten Kumar et al., Inflation targeting does not anchor

inflation expectations: Evidence from firms in New

Zealand. Brookings Papers on Economic Activity,

2015 (Fall), 151-225.

See, e.g., SEC, Office of the Investor Advocate, Report

on Activities, Fiscal Year 2020 (Dec. 29, 2020),

available at https://www.sec.gov/files/sec-investoradvocate-report-activities-2020.pdf.

For example, in 2019, the estimated amount of capital

reported as raised in private offerings under Rule

506(b) of Regulation D was $1.5 trillion, compared

to a total of $1.2 trillion raised in registered offerings.

SEC, Staff Report to Congress on Regulation A /

Regulation D Performance (2020), at 16, https://www.

sec.gov/files/report-congress-regulation-a-d.pdf.

See SEC, Office of the Investor Advocate, Report on

Objectives, Fiscal Year 2024 (Jun. 29, 2023), available

at https://dcm.sec.gov/files/fy24-oiad-sar-objectivesreport.pdf.

For example, under Rule 506(b) of Regulation D,

an issuer may sell securities to an unlimited number

of accredited investors and up to 35 non-accredited

investors who are financially sophisticated.

See, e.g., Letter from the North American Securities

Administrators Association, Inc. to Erik F. Gerding,

Director, Division of Corporation Finance, SEC,

RE: Private Market Reforms (Mar. 7, 2023),

available at https://www.nasaa.org/wp-content/

uploads/2023/03/2023-03-07-Letter-to-ErikGerding-Regarding-Private-Market-Reforms.pdf (last

visited Oct. 19, 2023) [hereinafter NASAA Letter];

Sophistication or Discrimination? How the Accredited

Investor Definition Unfairly Limits Investment Access

for the Non-wealthy and the Need for Reform,

Hearing Before the Subcomm. on Capital Markets, H.

Comm. on Fin. Serv., 118th Cong. (2023), available

at https://financialservices.house.gov/calendar/

eventsingle.aspx?EventID=408510; Andrew N.

Vollmer, Abandon the Concept of Accredited Investors

in Private Securities Offerings (Mercatus Working

Paper, Oct. 2020), available at https://www.mercatus.

org/research/working-papers/abandon-conceptaccredited-investors-private-securities-offerings-0.

See SEC Investor Advisory Committee, Meeting

Agenda (Sep. 21, 2023), available at https://www.sec.

gov/about/advisory-committees/investor-advisorycommittee/iac092123-agenda, and Webcast, SEC

Investor Advisory Committee Meeting (Sep. 21,

2023), available at https://www.youtube.com/

watch?v=mko5hUzhtRw and https://www.youtube.

com/watch?v=x3PAWKr_Lyk [hereinafter Webcast:

September 2023 IAC Meeting].

See SEC, Investor Bulletin: Private Placements under

Regulation D (Aug. 2022), https://www.sec.gov/oiea/

investor-alerts-and-bulletins/private-placements-underregulation-d-investor-bulletin.

See, e.g., NASAA Letter; Better Markets, Special

Report: The SEC Must Stop Bleeding Public Markets

Dry (Apr. 8, 2022), available at https://bettermarkets.

org/wp-content/uploads/2022/04/BetterMarkets_

Public_vs_Private_Markets_Report_April2022.

pdf. (last visited Oct. 19, 2023); and Webcast:

September 2023 IAC Meeting. See also Caroline

A. Crenshaw, Commissioner, SEC, Big “Issues” in

the Small Business Safe Harbor: Remarks at the

50th Annual Securities Regulation Institute (Jan.

30, 2023), available at https://www.sec.gov/news/

speech/crenshaw-remarks-securities-regulationinstitute-013023.

Id.

These concerns are expressed, for example, in a

number of the comment letters submitted in response

to the Commission’s 2013 proposed amendments

to Regulation D and Form D, which have not been

adopted. See Comments on SEC, Amendments

to Regulation D, Form D and Rule 156, Release

No. 33-9416 (July 10, 2013) [78 FR 44806

(July 24, 2013)], https://www.federalregister.gov/

documents/2013/07/24/2013-16884/amendments-toregulation-d-form-d-and-rule-156.

See SEC, Newsroom, SEC Proposals: Market

Structure, https://www.sec.gov/newsroom/marketstructure-proposals-december-2022.

See FINRA, FINRA Requests Comment on a Proposal

to Require Members to Provide Rule 605 Order

Execution Quality Reports to FINRA for Centralized

Publication, Regulatory Notice 23-10 (May 31,

2023), available at https://www.finra.org/rulesguidance/notices/23-10.

See SEC, Short Position and Short Activity Reporting

by Institutional Investment Managers, Release

No. 34-98738 (Oct. 13, 2023) [88 FR 75100

(Nov. 1, 2023)], https://www.federalregister.gov/

documents/2023/11/01/2023-23050/short-positionand-short-activity-reporting-by-institutionalinvestment-managers.

See SEC, Reporting of Securities Loans, Release

No. 34-98737 (Oct. 13, 2023) [88 FR 75644

(Nov. 3, 2023)], https://www.federalregister.gov/

documents/2023/11/03/2023-23052/reporting-ofsecurities-loans.

See, e.g., Federal Bureau of Investigation, 2022

Internet Crime Report (Mar. 10, 2023), at 3,

available at https://www.ic3.gov/Media/PDF/

AnnualReport/2022_IC3Report.pdf (noting the FBI’s

Internet Crime Complaint Center received 800,944

complaints in 2022 with a potential total loss of

more than $10.2 billion); see e.g., Ponemon Institute

and IBM Security, Cost of a Data Breach Report

2023 (Jul. 24, 2023), https://www.ibm.com/reports/

data-breach (noting the average cost of a data breach

in 2023 was USD 4.45 million, a 15% increase over 3

years); see also SEC, EXAMS Risk Alert, Safeguarding

Customer Records and Information at Branch Offices

(Apr. 26, 2023), https://www.sec.gov/files/risk-alertsafeguarding-info-branch-offices-042623.pdf.

REPORT ON ACTIVITIES: FISCAL YEAR 2023

See SEC, Cybersecurity Risk Management for

Investment Advisers, Registered Investment

Companies, and Business Development Companies,

Release No. 33-11028 (Feb. 9, 2022) [87 FR 13524

(Mar. 9, 2022)], https://www.federalregister.gov/

documents/2022/03/09/2022-03145/cybersecurityrisk-management-for-investment-advisers-registeredinvestment-companies-and-business.

SEC, Cybersecurity Risk Management, Strategy,

Governance, and Incident Disclosure, Release

No. 33-11216 (July 26, 2023) [88 FR 51896

(Aug. 4, 2023)], https://www.federalregister.gov/

documents/2023/08/04/2023-16194/cybersecurityrisk-management-strategy-governance-and-incidentdisclosure.

See SEC, Regulation S-P: Privacy of Consumer

Financial Information and Safeguarding Customer

Information, Release No. 34-97141 (Mar. 15,

2023) [88 FR 20616 (Apr. 6, 2023)], https://www.

federalregister.gov/documents/2023/04/06/202305774/regulation-s-p-privacy-of-consumer-financialinformation-and-safeguarding-customer-information.

SEC, Regulation Systems Compliance and Integrity,

Release No. 34-97143 (Mar. 15, 2023) [88 FR

23146 (Apr. 14, 2023)], https://www.federalregister.

gov/documents/2023/04/14/2023-05775/

regulation-systems-compliance-and-integrity. See

SEC, Cybersecurity Risk Management Rule for

Broker-Dealers, Clearing Agencies, Major SecurityBased Swap Participants, the Municipal Securities

Rulemaking Board, National Securities Associations,

National Securities Exchanges, Security-Based Swap

Data Repositories, Security-Based Swap Dealers, and

Transfer Agents, Release No. 34-97142 (Mar. 15,

2023) [88 FR 20212 (Apr. 5, 2023)], https://www.

federalregister.gov/documents/2023/04/05/202305767/cybersecurity-risk-management-rule-for-brokerdealers-clearing-agencies-major-security-based-swap.

This list of problematic products identified by the SEC

is based on staff analysis of the alerts and bulletins

issued by the SEC’s Office of Investor Education and

Advocacy and the SEC’s Division of Examinations

during Fiscal Year 2022. See SEC, Office of Investor

Education and Advocacy, Investor Alerts and

Bulletins, https://www.sec.gov/investor/alerts (last

visited Nov. 2, 2023); see also SEC, Division of

Examinations, Risk Alerts, https://www.sec.gov/exams

(last visited Nov. 2, 2023).

See NASAA, Top Investor Threats, https://www.nasaa.

org/investor-education/fraud-center/top-investorthreats/ (last visited Nov. 2, 2023).

This list of red flags is based on educator fraud tools

developed by the FINRA Foundation during FY 2023.

See FINRA Foundation, https://www.conemifyoucan.

org/fraud-tools/index.html (last visited Nov. 2, 2023).

O F F I C E O F T H E I N V E S T O R A D V O C AT E

PCAOB, Investor Advisory—Exercise Caution with

Third-Party Verification/Proof of Reserve Reports

(Mar. 8, 2023), https://pcaobus.org/resources/

information-for-investors/investor-advisories/

investor-advisory-exercise-caution-with-thirdparty-verification-proof-of-reserve-reports; Erica Y.

Williams, Chair, PCAOB, Statement on Rise in Audit

Deficiency Rates (Jul. 25, 2023), https://pcaobus.org/

news-events/speeches/speech-detail/chair-williamsstatement-on-rise-in-audit-deficiency-rates.

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

(8), requires the Investor Advocate to appoint an

Ombuds to act as a confidential liaison in resolving

retail investors’ concerns and questions about the

Commission and the self-regulatory organizations

(SROs) the Commission oversees.

As used in this report, the term “Ombuds” may refer

to the Ombuds, the Ombuds and staff in the Office of

the Ombuds, and, at times, to staff, contractors, and

interns in the Office of the Investor Advocate directly

supporting the Ombuds function.

See Exchange Act Section 4(g)(8)(B)(i), 15 U.S.C. §

78d(g)(8)(B)(i).

Among other things, the Ombuds is required

to “submit a semi-annual report to the Investor

Advocate that describes the activities and evaluates

the effectiveness of the Ombuds during the preceding

year” (Ombuds’ Report). See Exchange Act Section

4(g)(8)(D), 15 U.S.C. § 78d(g)(8)(D). The Ombuds’

Report on Activities, submitted to Congress each

December, describes the activities and discusses the

effectiveness of the Ombuds during the preceding

Fiscal Year.

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

See generally Exchange Act Section 4(g)(8), 15 U.S.C.

§ 78d(g)(8).

Please visit our website at www.sec.gov/ombudsman

for additional information.

The OMMS Form, a web-based, mobile-friendly

form permitting the submission of inquiries,

complaints, and documents directly to the

Ombuds, guides the submitter through a series of

questions specifically designed to elicit information

concerning matters within the scope of the

Ombuds’ function. In addition, the OMMS Form

allows submitters to easily upload and submit

related documents for staff review. When an

OMMS matter record is created, Ombuds staff can

review the matter details and communicate with

the investor via the OMMS platform, https://omms.

sec.gov.

For further discussion on this point, see Ombuds

Report section “OMMS as Early Warning System,”

infra.

To note, matters categorized as “Non-SEC/Other

Matters” refer to matters outside the jurisdiction of

the SEC, which fall within the jurisdiction of another

regulatory agency. Matters characterized as “Atypical

Matters” refer to matters where the submitter’s

characterization or description of the issue makes it

difficult to determine the nature of the complaint.

See Report at Section Research and Investor Testing,

Research Highlights from This Year, Registered IndexLinked Annuities at page 9.

See Report at Section Message of the Investor

Advocate at page 1.

For more information on threshold securities, see

SEC, Fast Answers—Threshold Securities, available at

https://www.sec.gov/answers/threshold.

For more information on Regulation SHO, see SEC,

Short Sales, Release No. 34-50103 (July 28, 2004) [69

FR 48008 (Aug. 6, 2004)], https://www.federalregister.

gov/documents/2004/08/06/04-17571/short-sales.

Participating law schools included (in alphabetical

order): Benjamin N. Cardozo School of Law, Cornell

Law School, Fordham University School of Law,

Howard University School of Law, New York Law

School, Northwestern Pritzker School of Law, Pace

University School of Law, Seton Hall University

School of Law, St. John’s University School of Law,

University of Miami School of Law, and the University

of Pittsburgh School of Law.

SEC, Office of the Investor Advocate, Report on

Objectives, Fiscal Year 2023 (Jun. 30, 2022), at

27-28, available at https://dcm.sec.gov/files/sec-officeinvestor-advocate-report-objectives-fy2023.pdf.

Id. at 28.

The SEC Division of Investment Management,

Division of Trading and Markets, Division of

Examinations, Division of Economic and Risk

Analysis, and the Office of the General Counsel also

contributed to the contents of this study.

The margin of error for a 95% confidence interval

on these estimates varies but is no greater than +/- 6

percentage points.

State-registered advisers and investment adviser

representatives are required to disclose certain

information about arbitrations with clients. See

Uniform Application for Investment Adviser

Registration, Form ADV Part 1B, Item 2.E (applicable

to state-registered advisers); Uniform Application

for Securities Industry Regulation or Transfer, Form

U4, Item 14.I (applicable to individual adviser

representatives). By comparison, SEC-registered

advisers are not specifically required to disclose

information about arbitrations with clients, but

they must disclose “all material facts relating to the

advisory relationship.” See Uniform Application

for Investment Adviser Registration, Form ADV

Part 2, Uniform Requirements for the Investment

Adviser Brochure and Brochure Supplements, General

Instruction 3.

See American Arbitration Association, What Happens

after the Arbitrator Issues an Award at 1 (“Many

parties will voluntarily follow the arbitrator’s decision;

however, the AAA and the arbitrator do not have

the authority to actually make a party do what the

award says.”), https://www.adr.org/sites/default/files/

document_repository/AAA229_After_Award_Issued.

pdf (last visited Sep. 15, 2023).

The stakeholders interviewed for purposes of this

study include American Association of Individual

Investors; Better Markets, Inc.; Financial Industry

Regulatory Authority Dispute Resolution Services;

Financial Services Institute, Inc.; Investment

Adviser Association; North American Securities

Administrators Association; Public Investors Advocate

Bar Association; and Securities Industry and Financial

Markets Association.

See, e.g., FINRA, The Neutral Corner, Vol. 2-2011

(2011), at 1, https://www.finra.org/sites/default/files/

Publication/p123535.pdf (“Discovery in FINRA

arbitration is more limited than discovery under the

Federal Rules of Civil Procedure or state discovery

rules.”)

See supra note 73, “What Happens after the

Arbitrator Issues an Award,” at 2, (“There is no right

to appeal in arbitration like there is in court”).

The term “broker” as used in this report refers to

broker-dealers required to register with the SEC and

with FINRA, along with their associated persons, as

the term “associated person” is defined under FINRA

Rule 1011(b).

FINRA Rule 12101.

FINRA Rule 12204(a).

FINRA Rule 2268(d)(2).

FINRA Rule 2268(d)(4).

FINRA Rule 12213.

FINRA Rule 12401. To note, claims of $50,000 or

less must be adjudicated by one arbitrator.

FINRA Rule 12402(a). For the definition of a “public

arbitrator,” see FINRA Rule 12100(aa).

FINRA Rule 12403.

See FINRA, Decision and Award, https://

www.finra.org/arbitration-mediation/decisionaward#:~:text=Arbitration%20Award,date%20

the%20record%20is%20closed.

FINRA Rule 12900.

American Arbitration Association, Commercial

Arbitration Rules and Mediation Procedures,

Administrative Fee Schedules, at 1 (Amended and

Effective May 1, 2018), https://www.adr.org/sites/

default/files/Commercial_Arbitration_Fee_Schedule_1.

pdf (last visited Sep. 15, 2023).

Id. at 2.

See SEC, Commission Interpretation Regarding

Standard of Conduct for Investment Advisers

(“Fiduciary Interpretation Release”), Release No.

IA-5248 (June 5, 2019) [84 FR 33669, 33670

(July 12, 2019)], https://www.federalregister.gov/

documents/2019/07/12/2019-12208/commissioninterpretation-regarding-standard-of-conduct-forinvestment-advisers.

Id. at 33671.

Id. at 33670.

Id. at 33671 (emphasis added).

Id. See also 15 U.S.C. §80b-6(2).

Id. at 33672, n. 31.

REPORT ON ACTIVITIES: FISCAL YEAR 2023

See id. (“In our view, however, there are few (if any)

circumstances in which a hedge clause in an agreement

with a retail client would be consistent with those

antifraud provisions, where the hedge clause purports

to relieve the adviser from liability for conduct as to

which the client has a nonwaivable cause of action

against the adviser provided by state or federal law.

Such a hedge clause generally is likely to mislead those

retail clients into not exercising their legal rights, in

violation of the antifraud provisions…”).

See In the Matter of Comprehensive Capital

Management, Inc., Order Instituting Administrative

Cease-and-Desist Proceedings Pursuant to Sections

203(e) and 203 (k) of the Investment Advisers Act

of 1940, Making Findings and Imposing Remedial

Sanctions, and a Cease-and-Desist Order, Admin.

Proc. File No. 3-20700, Rel. No. 5943, at p. 5 (Jan.

11, 2022), available at https://www.sec.gov/files/

litigation/admin/2022/ia-5943.pdf (hedge clause was

“inconsistent with an adviser’s fiduciary duty and

the [Fiduciary Interpretation Release] because it may

mislead [adviser’s] retail clients into not exercising

their legal rights.”).

Id. at 72.

O F F I C E O F T H E I N V E S T O R A D V O C AT E

See, e.g., id. at 5 (where hedge clause stated, in part,

that “[adviser] will not be liable for any incidental,

indirect, special, punitive or consequential damages,”

the hedge clause was inconsistent with an adviser’s

fiduciary duty and violated the antifraud provisions of

the Advisers Act because it might mislead retail clients

into not exercising their legal rights).

100 See infra note 72.

101 See id.

102 See SEC, Amendments to Form ADV (“Form ADV

Release”), Release No. IA-3060 (July 28, 2010) [75

FR 49233, 49240 (Aug. 12, 2010)], https://www.

federalregister.gov/documents/2010/08/12/201019617/amendments-to-form-adv.

103 Id.

104 Id.

105 Investment Advisers Act of 1940, 15 U.S.C. §

80b-5(f).

106 See, e.g., SEC, Investor Alert and Bulletin, BrokerDealer/Customer Arbitration (Jun. 14, 2022),

available at https://www.sec.gov/oiea/investor-alertsand-bulletins/broker-dealercustomer-arbitrationinvestor-bulletin (describing general differences

between litigation and arbitration with brokerdealers).

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.