Last month my old boss, former SEC Chairman Jay Clayton, told CNBC’s Squawk Box that “when governments select what a market structure ought to look like, innovation dies.” That insight was our guiding principle in my years at the SEC, and the warning it contains is more than theoretical. It is visible today in the way fintech innovators are being treated by regulators, industry incumbents, and the press.
The American financial system has long advanced through disruption. From ATMs to online securities trading, innovation has typically arrived with controversy in tow. Now a new generation of fintech firms are rethinking entrenched models. The result? Predictable resistance, all seemingly more interested in defending the status quo than in considering how new entrants might actually improve outcomes for ordinary Americans.
As Deputy Director for Public Affairs at the SEC, I saw how regulatory clarity could unlock progress — or how its absence could strangle it.
Tools like those powering platforms for modeling, monitoring, and rebalancing — sleek, secure, and swift — are pulling investment advisors into a digital age, promising savers smarter, faster counsel. Yet a shadow falls: state regulators, with vague alerts and overbroad interpretations, cast doubt on these innovations, treating technology providers as if they were advisors themselves.
The result is a chilling retreat to paper and drudgery, a betrayal of the fiduciary duty to serve clients well. Can the SEC, with a clarifying stroke, restore the promise of this transformation?
The stakes are subtle but profound. Advisors, bound by duty to act in clients’ best interests, once waded through stacks of statements; now, digital systems streamline these labors, sharpening advice and cutting costs. But regulatory uncertainty — stirred by prior SEC musings on predictive analytics and amplified by state-issued “guidance” — has advisors hesitating. So they scale back, reverting to manual tasks that slow their work and dull their insights.
This isn’t mere inconvenience; it’s a step backward, leaving savers with less-informed guidance in a world where every percentage point of return matters.
The challenge is urgent. America’s $12 trillion in workplace plans — often half a household’s wealth — sit in employer-chosen mazes that confound most savers. Studies show they want advisors to oversee these assets alongside their broader portfolios.
Yet companies like Pontera, which enable advisors to manage 401(k)s and other workplace accounts with precision, embody this struggle.
Countless consumers have opted in to their platform, valuing the control of one advisor managing all assets and sidestepping high-fee IRA rollovers. Advisors, from major RIAs to small firms, like the secure, efficient tools, integrating them into their practices. You know what else those savers like? The resulting higher returns.
This market enthusiasm signals a demand for innovation, yet it’s met with knee-jerk resistance from blinkered regulators.
Worse, the regulatory landscape is a patchwork, defying the National Securities Markets Improvement Act of 1996’s vision of uniform standards. States, wielding inconsistent rules, impose burdens that vary by border, sowing inefficiency and confusion.
Some legacy firms, reliant on IRA rollovers for fees and cross-selling, see fintech as a threat to their bottom line. They amplify murky concerns, urging regulators to slow disruption. State regulators, instead of issuing evidence-based rules, resort to ambiguous alerts that cast doubt on digital tools without substantiating risks.
The SEC could dispel this fog by affirming that technology providers are not investment advisors requiring registration and that SEC-registered advisors can use digital tools free from conflicting state dictates. Such clarity would honor the fiduciary imperative and unleash competition, ensuring savers reap the benefits of a digital dawn. Without it, we risk a twilight where innovation falters, and clients pay the price.
This isn’t about one platform—it’s about a system where competition thrives. Savers and advisors are ready for seamless retirement planning, not tethered to legacy models. Will regulators craft clear policies, or let vague “guidance” stall progress? The future of retirement security hangs in the balance, and it’s time for regulators to choose innovation over inertia.
Chandler Smith Costello is a former Deputy Director for Public Affairs at the Securities and Exchange Commission.
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