SEC chairman Clayton says mother and pop traders ought to eschew these investments

SEC chairman Jay Clayton testified during a June 25 subcommittee hearing of the House Financial Services Committee on Investor Protection, Entrepreneurship and Capital Markets.

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Many assets that are available to mom and pop investors are not suitable for this audience and should instead be held by discerning investors, the SEC chief said Tuesday.

“There are only a number of products that are not suitable for most individual investors,” said Jay Clayton, chairman of the Securities and Exchange Commission, in a virtual keynote address at the CNBC Financial Advisor Summit, a one-day roundtable for financial company advisors.

The agency’s head didn’t offer much detail, but did cite high-leverage investments and embedded option contracts as those long-term investors – those saving for retirement or college, for example – shouldn’t touch on a daily basis without extensive consultation with financial advisers.

“To the extent that these are short-term things that have the taste of the day and the taste of the month, those things make me nervous,” added Clayton.

The cost of such investments would likely undermine the benefits, and financial advisers should only recommend them in “idiosyncratic circumstances,” he said.

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New SEC rules called Regulation Best Interest, which came into effect earlier this year, are designed to raise standards of conduct for brokers who give clients investment recommendations.

Such rules will help protect the 50 million American households that are invested in capital markets, as well as future investors, Clayton said.

Consumer advocates believe that the rules do not materially change the broker-customer relationship, giving them and their businesses the freedom to recommend high-cost investments.

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