Remarks At The Meeting Of The Investor Advisory Committee, SEC Commissioner Mark T. Uyeda, Washington D.C., Dec. 10, 2024

Good morning and welcome to the final Investor Advisory Committee meeting of 2024. This year has been one of transition for the Committee. There were changes in Committee leadership, a large number of Committee members completed their terms and left the Committee, and five new Committee members were appointed. This year, the Commission reformed the IAC selection process to foster greater continuity of Committee membership by staggering terms, which is intended to limit turnover to no more than 25% in any given year.

I have had the privilege to work with every iteration and combination of the IAC during my career with the SEC, including its predecessor before the Dodd-Frank Act when it was an advisory committee under the Federal Advisory Committee Act. I saw the tremendous negative impact when you lose 12 or 14 members in a given year. The new committee members come in and you have to start all over again. In some ways, it reminded me of the movie Ground Hog Day. So, I am really pleased with these changes.

I give credit to our Investor Advocate Cristina Martin Firvida and her staff, Barbara Roper in the Chairman’s office, our General Counsel’s office, and Chair Gensler and my fellow commissioners for achieving these changes. Whether you are new to the Committee or have been a member for a number of years, thank you for your efforts and commitment.

Over the course of the year, the Committee has addressed a wide range of topics, and today’s panel discussions close the loop on a topic that began at the Committee’s first 2024 meeting in March. At that meeting, the Committee discussed the Commission’s oversight of investment advisers and examined the growth of private markets relative to public markets. At today’s meeting, the Committee will discuss the use and scope of mandatory arbitration clauses by investment advisers, a topic that was studied by the staff of the Office of the Investor Advocate and the Office of the Ombud in 2023, and will explore the methods by which retail investors can gain access to private market investments, such as through direct investments in registered funds.

I am particularly mindful of the costs associated with the use of mandatory arbitration clauses by investment advisers. The staff study states that 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.”[1] The report contrasts this practice with FINRA rules for arbitration arrangements between broker-dealers and their customers, which require panels consisting of a single arbitrator for disputes involving amounts under $100,000. I will be interested in hearing perspectives on whether arbitrations involving investment advisers and their clients are more costly than necessary – including due to the use of multiple arbitrators when a single arbitrator would suffice.

The panel on the mainstreaming of alternative assets to retail investors is particularly timely. Just last week, the Wall Street Journal reported that, in 2024, private companies have sold more than $6 billion in stock using a tender offer mechanism. By comparison, only $31 billion has been raised by companies in traditional IPOs.[2] In addition, the total number of unicorns – which are private companies with a valuation of $1 billion or more – has increased from 47 to 1,250 over the last decade.[3] With the increasing reporting burdens on public companies, including the politicization of annual meetings through special interest shareholder proposals, it is no surprise that the idea of becoming a public company is now less attractive.

Consistent with its mission to facilitate capital formation and protect investors, it is incumbent upon the Commission to foster innovation as it relates to providing retail investors with access to private markets. The use of registered funds, which are professionally managed by investment advisers subject to a fiduciary duty, is a good start. I look forward to hearing the perspectives of the panelists and Committee members as they tackle this important topic.

Finally, the Committee will be considering a recommendation regarding the protection of investors in their interactions with “finfluencers.” More individuals are turning to social media for a wide array of information, including financial information. This evolving landscape presents opportunities for individuals to be led astray, but regardless of who you are, you are still subject to the antifraud provisions of the federal securities laws.

The Commission also has authority to regulate investment advisers, which is statutorily defined as any person who, for compensation, advises others as to the value of securities or the advisability of investing in securities. The definition also captures those who, for compensation, and as part of a regular business, issue or promulgate analyses or reports concerning securities. While social media presents new potential pitfalls for investors, the Commission must be mindful of which types of conduct fall within its jurisdiction, and which ones do not.

If a “finfluencer” is an investment adviser, the full range of laws and rules that apply to investment advisers potentially apply to any advice that is promulgated through social media channels. But mere opinions expressed by individuals in an online setting do not necessarily trigger investment adviser status, so the Commission must not exert authority over conduct that does not fall within its statutory remit. Of course, the Commission is fully empowered to educate investors about emerging issues, and perhaps in this case investor education can go a long way to assisting individuals in making investment decisions that are consistent with their own interests.

Thank you to the Committee members and panelists for your time in preparing for this meeting. I look forward to the discussions that follow.