Remarks Of Richard E. Thornburgh
Chairman, Securities Industry Association
SIA Annual Meeting
November 4, 2004
Thank you, Marc …
It's been a great privilege for me to serve as SIA Chairman for the past year. As I prepare to turn over the gavel to Danny Ludeman tomorrow, I want to say how much I've enjoyed working with my fellow board members and SIA's staff, particularly Marc and Don.
When I stood at this podium a year ago, our industry was nearing the end of a very tough year. As I laid out our ambitious priorities for 2004, I said that as an industry made up of people dedicated to free and efficient capital markets, we could and would rebound – and we did.
We headed into 2004 still facing some major challenges. By focusing on our core values and our clients' best interests, we made steady progress throughout the year on several important fronts.
First, regulation at home. We have continued to support the SEC as our nation's primary securities regulator. We have worked closely with the Commission on a series of mutual-fund reform measures, on clearing and market structure issues, and on promoting fair and transparent international markets.
Second, international regulation. We've also focused attention on the dangers of regulatory conflicts between international jurisdictions, especially between the U.S. and the E.U. We took that message to Congress in June, when I testified about the damage that could be done by a continuing tug of war for regulatory supremacy between the two sets of regulators.
Third, helping investors. We have supported the best ideas for helping investors save for their children's education and for retirement. We went to Capitol Hill and made the case for extending the incentives for education and retirement savings programs.
Next, building relationships. We have worked to leverage our strengths through cooperation with trade associations that share our goals and perspectives, such as the Bond Market Association, the Financial Services Roundtable, the International Swaps and Derivatives Association, and the Investment Company Institute.
Finally, we began the year determined to accomplish these two closely related goals:
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To recommit our industry to ensuring that our practices reflect our core values of integrity, suitability and fair dealing, and
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To tell our story more effectively – taking a more proactive role in shaping discussions about our industry, so that regulators, legislators and the public at large will understand the critical contributions we make to the economy.
The Commitment to Clarity emerged from discussions with SIA board members, officers, and members of our Public Trust and Confidence Committee.
We believe "clarity" is nothing less than the cornerstone of investor trust – a pact between our industry and the investors we serve.
Clarity is in the best interests of investors – and if it helps make securities more attractive to investors, it will be in the best interests of the industry as well.
What's more, clarity can be a competitive differentiator for firms that embrace it.
Clarity means more than just disclosure and transparency – it means understanding. As we use the term Clarity, it has four components – each of which is essential to the fairness and efficiency of the markets.
The first of these is Clarity of Responsibility. We are a service industry that manages other people's money. That gives us a special obligation to meet high standards.
Second, there is Clarity of Costs. Simply put, an investor has the right to know and understand the costs of financial products and services – in advance.
The third component is Clarity of Performance. Whenever we talk about performance, any comparisons or benchmarks we use should be easy to understand and, to the extent practical, standardized.
Finally, there is Clarity Through Understanding. We must ensure that investors, public officials, our own professionals, and the public as a whole fully understand the nature of the securities business and the financial markets – what we do, and why we do it.
SIA has been actively working for many years to foster increased understanding of our industry, and you just heard Marc talk about some of the initiatives of the Foundation for Investor Education.
Clarity is responsibility, costs, performance, understanding; these are important principles that should guide everything we do. We need to bring them to life, and we've begun to do that through specific recommendations to our members. We are presenting these recommendations today in a series of position papers, which are available in the back of the room or on SIA's website.
The first is The Investor's Bill of Rights.
Investors have important rights, ranging from high-quality service to accurate reporting to dispute resolution. Our industry has a special responsibility to ensure that they understand these rights.
Investors also need to understand their responsibilities, and it is our job to be clear about those, as well. We can't serve our clients well if we don't have accurate information about their goals, circumstances and tolerance for risk.
A second set of recommendations is called, Putting Clients First.
In a widely noted speech in September of last year, SEC Enforcement Director Steven Cutler challenged our industry to deal aggressively with potential conflicts of interest. Such conflicts should be eliminated where possible, and where they are inherent in the business, they should be managed through disclosure.
With a variety of business models, our member-firms face different kinds of potential conflicts. Irrespective of these differences, every client is entitled to know how the broker or agent is compensated, and whether the firm has investment banking or other significant business relationships that could influence a firm's recommendations to investors.
Third, we have recommendations on the key issue of International Regulatory Transparency.
SIA believes that transparent, fair regulatory systems across national boundaries are critical to developing deep, liquid capital markets that will, in turn, attract market participants, increase efficiency, and fuel economic growth and job creation. We will continue to make our views known in every important forum, particularly in the U.S. and the E.U., where regulatory conflicts have the potential to do great harm to the world's leading markets.
A fourth topic is Soft Dollars.
SIA strongly believes there are concrete benefits to the investor from "soft dollars" – the practice of fund advisors receiving research or other services from broker dealers in exchange for executing trades through that broker. The system supports independent research, and levels the playing field by giving smaller firms access to a wider variety of research. We believe these benefits outweigh the possibility of conflicts of interest, and that conflicts can be managed with adequate disclosure and limits on the scope of soft dollar arrangements.
Finally, Mutual-Fund Disclosures.
Our research found that investors feel that mutual-fund disclosures can be confusing, difficult to find, and inconsistent.
To address this, SIA believes that there should be clear information about a fund's objectives, past performance, and risk factors; clear information about fees and incentive compensation arrangements; and, plain English disclosures that are consistent and standardized.
The Clarity initiative is a way to reaffirm and underscore our industry's commitment to the core values of integrity, suitability and fair dealing. SIA needs to focus more sharply on what our industry will look like – and what it should look like – in the years to come.
The Commitment to Clarity provides us with a platform for doing just that. The issues that our industry faces will change from year to year, but the Commitment to Clarity is intended to endure, and I know Dan Ludeman plans to tell you more tomorrow about how SIA will reinforce this commitment in the months ahead.
Throughout the past year, I was reminded countless times that our industry is made up of an extraordinary group of skilled professionals dedicated to helping investors fulfill their most important personal goals. As I listened to SIA members talking about their jobs, their customers and their responsibilities, I knew that we were fully ready and able to meet the many challenges we faced.
In sum, I am the one who has benefited the most from this year. I take away from my experience a renewed appreciation of the key role our industry plays in the lives of families and individuals, as well as the nation's economic well-being. And I believe more firmly than ever that our industry deserves the trust and confidence of regulators, our customers and the public.
Thank you again for all your support and help during my tenure as Chairman.
