Donna Gambee, a real estate company accounting manager with a high school education, was so "overwhelmed" with the amount of paperwork her broker David Lloyd Barber used to send her that she stopped reading it.

Buried inside a 40-page package of documents, however, was a profile of Gambee written by Barber, describing her as "an investor with a six-figure income and extensive investment experience, seeking an aggressive investment strategy, and having a high tolerance for risk," according to a new report from the Public Investors Arbitration Bar Association filed to the SEC.

"None of it was true," PIABA maintains.

The SEC headquarters
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Gambee alleged she lost her nest egg after her broker put her into high-risk investments for his own personal gain. A FINRA arbitration panel agreed.

The SEC's latest rule proposal is meant to prevent such misconduct, but it actually falls far short of that goal, in part because of its reliance on paper disclosure, PIABA says in the latest salvo in a battle over standards of conduct for brokers.

The investor advocacy group is prodding the SEC to take steps to strengthen its proposed best interest standard.

They aren't alone.

In its current form, the SEC proposal has come in for withering criticism from investor advocates, financial planners and members of Congress. Even the SEC's own commissioners offered expressed disapproval of the regulation when it was first made public. Commissioner Kara Stein, a democrat, said the proposal squandered "the opportunity for us to act in the best interest of investors."

For its part, PIABA says that the best interest proposal's reliance on paper disclosures is ineffective and likely to create more confusion for investors.

"Numerous studies illustrate that cognitive biases and lack of financial literacy, among other factors, greatly diminish the effectiveness of written disclosures," PIABA's report says.

The SEC has solicited input from across the financial services industry as it considers whether and how it might rewrite the rule. The comment period for that input ends Aug. 7.

The Labor Department held similar public comment periods after proposing its fiduciary rule, which was nullified earlier this year by a federal appeals court hearing a case brought by the U.S. Chamber of Commerce and Wall Street trade groups.

When reached by phone, Gambee says she hopes the commission will move decisively to protect other investors like her.

"I don't think it's enough to give the paperwork and expect the clients to read and understand that," she says. "I think there should be some type of regulation that ensures that [advisors] go over that with the client."

Her ex-broker Barber, who was registered with Madison Avenue Securities from 2015 to March 2018, could not be reached for comment. Representatives from Madison did not immediately return calls. FINRA barred Barber in March for allegedly failing to cooperate with the regulator's request for information.

The arbitration panel that heard Gambee's case ordered Barber and the brokerage earlier this year to pay $1.67 million in compensatory and punitive damages for Gambee's losses.

To improve the SEC proposal, PIABA recommends the regulator make 15 changes, including the following:

1. Prohibit certain incentive-based compensation plans, in particular sales contests that award brokers with high-end vacations and monetary prizes that can tempt advisors to place their own financial interests before those of their clients.

2. Bar incentives to sell any investment product ― including proprietary ones sold by a broker's own firm ― over any other product.

3. Require simplified disclosure of fees, charges and all other compensation.

4. Require brokers to engage in meaningful due diligence to prove they are providing advice that is in keeping with a client's real best interest.

During Gambee's arbitration fight, her former broker and his firm allegedly used the current weak disclosure rules to defend Barber's investment choices for her, the PIABA report says. Lawyers for the defense allegedly argued that because Gambee had signed a 40-page package of documents ― which contained the erroneous profile ― her broker's investment choices were justified.

No defendant broker or firm could attempt such an argument if regulators introduced a "duty of care" obligation with real teeth as part of the new rule, says Andrew Stoltmann, an attorney and PIABA's president.

"Disclosure is meaningless," Stoltmann says. "To the extent the SEC doesn’t impose something more than disclosure, this rule is a paper tiger."