Good afternoon, everyone.
Marc, thank you so much for that kind introduction. It’s wonderful to be back at an ABA event and I am excited to be doing so in my new role as SEC IM Division Director. I am eager to engage with you today and am glad to see so many familiar faces.
Before we get started, I must start with our standard disclaimer. Thanks to the lapse in appropriations, this is only my second time making this statement, so forgive me for reading off a card.
These remarks are provided in my official capacity as the Securities and Exchange Commission’s Director of the Division of Investment Management, but do not necessarily reflect the views of the Commission, the Commissioners, or other members of the staff.
With that said: I have been with the Commission now for five months, one and half of which coincided with the longest government shutdown on record. As I roamed the 8th Floor for 45 days – only able to work on a very short list of “excepted” activities – I couldn’t help but ponder the Division’s path forward. With your indulgence, I thought that this would be a good forum to share some of our priorities.
Listening
Now, when it comes to our priorities, I want to be clear about something: I serve at the pleasure of the Commission. The Chairman sets the overall direction, and the Commissioners—nominated by the President and confirmed by the Senate—vote to implement that agenda. So, my personal priorities for the division are always shaped by and aligned with the broader goals of the Commission. If those priorities shift, we shift with them.
That said, my top priority for the Division is simple: to be good listeners.
My mother used to say, “The minute you start talking is the minute you stop learning.” And she was correct. Listening—really listening—is one of the most effective tools we have as regulators.
Some of you can see that I am wearing cufflinks shaped like tiny hippopotamuses. Why? Because hippos have two tiny ears and one huge, massive mouth. These are to remind me not to be a hippo.
We are deeply interested in what the industry has to say, how investors feel, and how the public perceives our proposals. While my track record is short, our public outreach to date has been fruitful, sometimes in unexpected ways. In some cases, after engaging with stakeholders, it became clear that some of my brilliant ideas were off-base. Some were solutions to problems that didn’t exist, and others addressed issues that the market had already evolved past.
But by asking questions and listening carefully, we’ve been able to redirect our resources toward initiatives that do make sense—initiatives that are grounded in reality and responsive to the needs of investors and the industry alike. You’ll get a feel for those in the next publication of the RegFlex agenda…
And by listening, we became smarter—often about parts of your businesses that we weren’t even asking about. It’s funny how, when you give experts the space to tell you what they think is important, you might be surprised by what you hear.
So yes, we have policy goals. Yes, we have regulatory responsibilities. But above all, we have a duty to listen, to learn, and to lead with humility and purpose.
Agenda
But let’s shift to more concrete points. While it is impossible to completely reduce a four-year workplan to a short list of bullets, hope springs eternal.
When you look at our various efforts, I think that you will see each step the Division takes falls into one (or more) of the following themes:
- An overall deregulatory effort;
- Modernization initiatives;
- Democratization of alternative asset investments; and
- Promotion of artificial intelligence.
Deregulation
The American capital markets are the envy of the world. In my opinion, the reason for American dominance in finance is simple, we allow more innovation than our competitors.
Thoughtful and measured deregulation can unlock value. In 2019, the Commission streamlined the ETF approval process, and in six short years, the exchange traded fund has literally changed the face of retail investing. Retail investors have more investment options, at lower cost, than ever before. ETFs deliver true beta, cheaply, and provide active management in a wide variety of forms.
And with our new ETF Share class orders, we are allowing industry the option to link ETFs and mutual fund structures to deliver even more choices, at reduced expenses, for retail investors.
Commission actions and restraint also allowed the private fund market to flourish. America invented the hedge fund, the private equity fund, and the private credit fund, and these structures transformed institutional investing, with compensation structures that aligned mangers and investors in innovative ways. And why here? Again, because we allowed a lighter-touch regime to develop for sophisticated investors capable of managing their own risks.
In our rulemaking, oversight, and exemptive efforts over the next few years, you can expect that the Division will be receptive to suggestions on how thoughtful changes to existing rules can facilitate innovation. We are asking “Why is this still on the books?” in a number of contexts, and you should too.
To be clear, we are still the Investor’s Advocate (a motto you will see framed throughout the building, including in the Chairman’s office). And you can expect us to remain laser focused on retail protection and market stability. But where we can remove restrictions that do not serve the common good, we are interested in doing so.
Modernization
We need to modernize our rulebook. Is that news to anyone here?
Many of our rules were well-intentioned when adopted, with underlying policy goals that often remain valid—but the requirements themselves have become outdated.
The Custody Rule – for example – clearly did not contemplate digital assets. While more thinking on this is needed, we were able to issue a no action letter hours before the shutdown related to advisers’ ability to custody client crypto assets with state-chartered trusts. We have more catch-up work to do here, but that is a good first step.
Our recordkeeping rule is an even better example. This rule was written in a time when communications were physical and manual. Think about a letter that might begin, “Dear Mr. Smith, a company called Micro Software is coming to market soon. We believe we can secure an allocation of IPO shares for this newfangled computer company. If you’re interested, please write back to us at the following address….”
The world the recordkeeping rule was built for no longer exists. Today, we live in a digital, cloud-based, multi-platform environment. Yet the language of the rule still reflects a paper-based mindset. We’ve even seen past regulatory missteps—ours and others’—where we mandated specific technologies, like WORM (Write Once, Read Many) storage on CD-ROMs, only to watch the industry move on to more effective and flexible solutions.
So, across the advisory rulebook, if and when we recommend changes to the Commission, our goal will be to do so in a way that is platform-independent, technology-neutral, and future-ready. I would be very sad if someone is giving this same speech in 40 years because our recommendations to accommodate a digital world were not compatible with the quantum one that future Director is living in.
Democratization
As you all know, the arc of the trend toward the retailization of private markets has been observable for some time, but it became even more pronounced with the issuance of President Trump’s Executive Order directing the Department of Labor to take steps to expand access to alternative investments within 401(k) retirement accounts. We are working closely with our colleagues at the Department of Labor to support their efforts in the context of ERISA plan options.
However, democratization options for retail investors using post-tax, pre-retirement dollars fall squarely in our purview.
But what does this look like? It does not necessarily mean a “big bang” “Retailization Rule” that suddenly transforms everything about how private funds are structured, marketed, and operated. Instead, the markets and investors may be better served by a thoughtful and incremental reconsideration of our existing regulatory framework across different access points, investment structures, and disclosure requirements.
Let me give you a concrete example: You may recall that the Chairman directed us to reconsider our practice of asking closed-end funds that invest in private funds to either ensure that their investors were “accredited investors” or to limit their exposure to private funds to a relatively small percentage of their net asset value. We did that and followed it with the publication of an Accounting and Disclosure Information bulletin (an “ADI”) intended to provide our high-level views to managers of closed-end and private funds navigating this less constrained retail environment.
But look at what we did not do. We did not respond with another prescriptive regulatory regime. We did not trade one set of restrictions for another based on an unproven worst-case scenario. We did not orchestrate a bunch of examinations and enforcement actions to establish de facto substantive limits that made sense to us.
We are not withdrawing from the field, but we are allowing you enough space to innovate. When the time is right for us to get involved on this topic, we will do so, but that time is not today.
I predict that you will see a lot of this from us: targeted actions, followed by additional staff engagement and observations. And I hope that when we look back three or four years from now, you will see a broader shift that was effected through a number of carefully considered, linked steps that collectively reflect the evolving nature of our markets and the needs of today’s investors.
Artificial Intelligence
Another area of growing importance for our division—and for the broader financial ecosystem—is artificial intelligence.
We see AI as a transformative force in the investment management industry—one that we want to enable, support, and regulate thoughtfully. In this we are aligned with all three pillars of the Administration’s AI Action Plan: Accelerating AI Innovation, Building American AI Infrastructure; and Leading in International AI Diplomacy and Security.
We are constantly thinking about how AI can transform disclosure and the investor experience. Some of your clients have received unsolicited calls from me personally, following up on some kind of article or announcement about a novel AI application and asking if your clients would be willing to share their experiences with our team.
Personally, I think that AI can be a boon to effective disclosure. Imagine taking the traditional stack of mutual fund offering documents—hundreds of pages long, written in dense legal language—and pairing it with an investment adviser’s proprietary AI Agent. Suddenly, you’ve moved from a linear, text-heavy disclosure model to an interactive, personalized experience—one that reflects how people actually consume information today, in the age of iPhones, TikTok, and YouTube.
This shift—from 20th-century PDFs to 21st- and even 22nd-century AI interfaces—has the potential to revolutionize investor engagement. But it also raises important questions:
- Is the AI Agent’s output considered marketing material?
- Is it investment advice?
- When will the AI Agent itself need to be registered?
- Who bears liability for bad advice — the adviser, the developer, or a third-party platform?
We know that these are not hypothetical concerns. They are real regulatory questions that we want to actively explore with you.
The Chairman sometimes refers to the SEC as “The Innovation Commission. ”That’s real and we want to hear from you. Let’s discuss what relief or guidance is needed to support your efforts.
If you want to innovate, this is the Commission that you have been waiting for.
