Clayton Urges Increased Care for Retail Investors in Wake of Pandemic

Clayton Urges Increased Care for Retail Investors in Wake of Pandemic

Also Confirms June 30 Reg BI, Form CRS Compliance Date

June 18, 2020


Jay Clayton

Saying the effects of the COVID-19 pandemic “weigh substantially in favor of implementing Reg BI and Form CRS requirements as soon as practicable,” SEC Chairman Jay Clayton confirmed in a recent public statement that the June 30, 2020 compliance date for Form CRS and Regulation Best Interest (Reg BI) remains in effect. He also discussed a new website page on the SEC’s website designed to inform and educate “Main Street” investors about Form CRS.

In the statement, Clayton expressed strong concerns about the marketing of certain investments and strategies to retail investors, who may have a greater need for cash due to the pandemic. He calls on firms to focus on the following areas to make sure that they are providing advice in the best interest of retail investors:

  • Rollovers and Withdrawals from Retirement Plans: Noting that the CARES Act retirement provisions allow investors to take early distributions of up to $100,000 without penalty, Clayton cautioned retail investors to navigate any decision to withdraw retirement funds carefully. He cited a recent investor alert by the SEC’s Office of Investor Education and Advocacy that noted that “some promoters are recommending that investors take CARES Act withdrawals or otherwise roll-over retirement funds to invest in products they are soliciting,” and reminded firms that their policies and procedures must meet applicable requirements.


  • Complex or Risky Products: Recommendations or investment advice regarding these products “should be carefully reviewed by firms to ensure that they are in the best interest of retail investors.”


  • COVID-Related Investments: Advice regarding these investments should include “a consideration of whether investments are recommended only to those clients who can and are willing to tolerate the risks of those investments and for whom the potential benefits may justify the risks.” Clayton also described how some of these investments have been part of alleged “pump-and-dump” schemes or connected with penny stocks.


  • Special Purpose Acquisition Corporations (SPACs) and Other Structured Investment Vehicles: SPACs raise money from investors that is used to acquire other companies. If a target company is not identified in a specified period of time, investors typically receive their money back. Clayton raised concerns that “because of this ‘money back’ feature, during times of heightened market volatility, retail investors may view SPACs as a relatively safe investment option, even though the structure and strategy of a SPAC may present complex risks.” He advised that investment advice to retail investors regarding these types of investment vehicles take those risks into account.

See Confirmation of June 30 Compliance Date for Regulation Best Interest and Form CRS (June 15, 2020).


TAGS: Jay ClaytonCARES ActCoronavirusCOVID-19Form CRSReg BIIRAsRetirement Plans

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