Quantifying the Standard of Care

The SEC's 2022–2023 Staff Bulletins on Care Obligations, Conflicts of Interest, and Account Recommendations articulate a rigorous standard of care for investment fiduciaries. This 105-page report documents, with evidence, the gap between those standards and what the industry actually practices.

Using publicly available financial data, documented historical base rates, and standard statistical methods, it is possible today to calculate the probability that a stock at a given valuation will deliver negative returns over a specified horizon — and to compare that probability against the guaranteed yield of a Treasury security. The report proposes that this gap be closed using data science tools that exist today.

The report documents eight companies where extraordinary business growth produced zero or negative stock returns for investors — because the valuation at the time of purchase was too high to sustain. In every case, the probability and magnitude of loss could have been estimated in advance using publicly available data.