May 16, 2025

SEC needs to show its hand on disclosures after Cutter verdict, analysts say

The Securities and Exchange Commission has some work to do following the recent guilty verdict against a Massachusetts advisor for insufficient disclosures.

In the April verdict, the jury determined that Jeffrey Cutter and Cutter Financial Group did not violate Section 206(1) of the Investment Advisers Act of 1940, but did find violations of Section 206(2), which bars advisors from engaging “in any transaction, practice or course of business which operates as a fraud or deceit upon any client or prospective client.”

Cutter was negligent in not disclosing the specific upfront amount of annuity commissions, the jury found.

But the verdict leads to further questions on how the SEC, moving forward, will treat registered advisors who also sell insurance-regulated annuities, said Brad Campbell, partner with Faegre Drinker Biddle & Reath.

The civil case attracted outsized attention across the industry as the SEC attempted to apply advisor standards to Cutter’s life insurance transactions. Now that a verdict is in, Campbell and Fred Reish, also a partner with Faegre Drinker, discussed the fallout Thursday on their regular “Inside the Beltway” webinar.

“Is this a new SEC position?” Campbell asked. “What granularity is now being required, and is that different than it was before?”

Campbell noted that he represents Finseca, an industry trade association that filed an amicus brief in the Cutter case.

“I just think people need to be for the time being, not cautious in recommending annuities, but cautious in making more robust disclosures so that they can feel like they’re safe from any claim that they didn’t disclose something,” Reish said.

‘Will there be a different view?’

In March 2023, the SEC filed charges against Jeffrey Cutter and his advisory firm, Cutter Financial Group, for “recommending that their advisory clients invest in insurance products that paid Cutter a substantial up-front commission without adequately disclosing Cutter’s and CFG’s financial incentive to sell the products.”

According to the SEC complaint, Cutter earned 7-8% commissions on annuity sales as an agent, compared to 1.5-2% fees while managing assets as a fiduciary advisor. Starting in 2014, Cutter generated more than $9.3 million in commissions from the sale of 580 annuities to his investment advisory clients, the SEC said.

Complicating matters, President Donald Trump nominated Paul S. Atkins to head the SEC and he was quietly confirmed April 9. Cutter’s case originated from the desk of Atkins’ predecessor, Gary Gensler, Campbell noted.

“Will there be a different view at the SEC, given that the new chair and others have made it clear that the SEC is against what they call ‘regulation by enforcement,’” he added.

In a news release reacting to the verdict, Cutter Financial Group seemed to endorse more disclosures and announced an educational campaign “to explain compensation structures in accessible terms.”

“We believe the entire industry can benefit from clearer standards and simpler language,” said Jen Farrington, investment advisor representative and chief compliance officer. “We’re committed to leading that conversation—not just for our clients, but for the profession as a whole.”

Aronowitz nomination

In February, Trump nominated Aronowitz to become the next assistant secretary of labor for the Employee Benefits Security Administration. His role is an important one as EBSA leads efforts to extend fiduciary duty to cover the sale of insurance products. Aronowitz remains in limbo, but Campbell doesn’t think he faces any obstacles.

“I personally am very excited by that choice,” Campbell said. “He’s a really knowledgeable guy. He’s got decades of experience, has been a very vocal person about some of the policy differences he’s had with the Labor Department in the past, and I think is going to have a clear direction of where he wants to go in the future.”

If confirmed, Aronowitz will have a voice on the future of the Retirement Security Rule, the DOL’s latest attempt to rope annuity sales into a fiduciary standard. Originally set to take effect on Sept. 23, 2024, the rule remains tied up in court. In July 2024, federal courts in Texas granted a stay.

The DOL appealed the court orders, and the cases are currently before the Court of Appeals for the Fifth Circuit. In April 2025, the court granted the DOL an additional 60 days to determine its next steps in the consolidated litigation.

“The litigation is important because it’s going to be the first time the Trump administration takes an affirmative position as to what to do next,” Campbell said.

Otherwise, Aronowitz is on record speaking out against the rash of employee plan sponsor litigation. Action on that front is needed, Campbell and Reish agreed, before plan sponsors decide that the liability headaches are not worth offering retirement plans.

“There needs to be some way, some better way, to get frivolous or unsubstantiated claims thrown out by the courts earlier, so that they don’t involve the tremendous cost,” Reish said.

Enforcement actions are another area in which Aronowitz could have an impact. Ten years ago, EBSA was routinely closing roughly 3,500 civil investigations annually, Campbell said. Last year they closed 739, he added, and it wasn’t a one-year aberration.

Campbell served as head of EBSA for about 18 months from 2007 to 2009.

“EBSA is in need of reform, is what I’m saying, and it has been less effective,” Campbell said.

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